Allocation Per Trade

At the heart of all option trading systems there is a requirement that you have small positions with every trade. If you learn how to trade small you almost completely remove the risk of blowing up your account.

If each individual trade is small you can withstand a complete loss on that particular trade if the stock makes a huge move in one direction or another. This protects us from the so called "black swan" events that will happen again in the future - count on it.

Contrary to popular belief though, studies have been shown to prove that actually making smaller trades is more successful regardless of your win rate.

Allocate no more than 3 option contracts per trade when first starting as a beginner option trader. In other words keep your amounts invested especially on option trades to a manageable amount, don't get to greedy or speculative.

Don't forget to set stop loss alerts to monitor your positions.

Daniel Iuculano

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