Pillars of Our Trading Philosophy
We believe the pillars of successful options trading are:
Mechanical, Small Positions to Maximize Occurrences
Minimize Emotional Influence
Trade the Math
Pillar 1: Mechanical, Consistent Small Positions to Maximize Occurrences
Options are leveraged instruments and when novice traders follow the scams perpetrated as trading gold, they often blow up their accounts, savings, or worse.
We firmly believe that with every position that a trader takes, they should (in theory) be “OK” with losing the entire position. This can only be achieved by trading small position sizes (1-3% of the account at time).
Successful options traders need to not only trade small, but trade multiple strategies often. In fact, if disciplined in your position sizing, you will find you need 50-100 open positions at any given time in order to stay adequately invested. Further to the consistency mantra, an options trader should not tweak their strategy too frequently. No strategy wins all the time, it takes a cold, hard repetitive approach with minor tweaks over the long term to see success.
Quick, huge wins are often too inconsistent and detrimental to a retail trader who almost certainly has less access to news and information than the pros. We believe that the Brutus Options Ranker drives this consistency.
Pillar 2: Minimize Emotional Influence
Nothing puts your trading more at risk than falling into the typical cycle of trading emotions that affects not only retail traders, but all of the markets. We believe that a mechanical, consistent approach not only removes the risk of emotional influence, but allows traders to take advantage of other trader's emotions in the marketplace.
Not only do these trading emotions cloud our judgment, but they cloud the collective judgment of the market as well.
We believe this is great news for retail traders, as we can take advantage of the troughs of fear and the peaks of overconfidence, although we must be very diligent not to let it influence both how we manage our open positions and how we find our next trades.
A cold, hardened mechanical approach, made possible with the Brutus Options Ranker and [coming soon] Brutus Portfolio Manager, is key. We rely on Brutus to execute our personal trading strategies each evening in an unbiased mechanical way to find the next opportunities.
Pillar 3: Trade the Math
In Pillar 2, we hinted that we can take advantage of the cycle of market emotions. This is achieved by trading implied volatility (IV), a key criteria to any Brutus Options Ranker Strategy.
We look to sell options when IV is high and buy options when IV is low. This puts the odds in our favor. Sure, it doesn’t work out every time, but if you consistently work a mechanical options trading strategy and combine it with sound trade management principles, such as closing positions prior to expiration of a portion of the potential profit, we see great results in the long term.
We like to think of this like a casino, but instead of the gambler, the house. Sure it’s possible for the dealer to lose a few hands or even have a bad night. However, if the rules of the game are strict (min bet, max bet, dealer holds on 17) then the house always wins in the long term. They play the math, and leave the emotions to the gambler.
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