Option Trading: Make Sure You Paper Trade First!

Option trading can be one of the most financially rewarding of all investment strategies. It requires far less investment capital than share trading and if you combine this with the amazing flexibility of option choices and you have every opportunity for success.


But option trading is also a skill that must be mastered. In fact, it is more of an art than a skill. Learning the theory is one thing, putting it into practice is another. This is why paper trading is so important. You need to get a feel for the market - how to read chart patterns correctly, how to know if your option is reasonably priced, how to handle a trade going against you etc.


You may have read some material about option trading, or even gone one step further and attended a weekend seminar run by one of the super traders such as Nik Halik. Your head may be full of newly acquired knowledge which you're very excited about and just itching to put into practice so you can make some money. But in real life, the markets have a way of teaching you about yourself - and you must be mentally prepared for that.


I like to think of the process of mastering the interpretation of charts (whether they're stock, forex or commodity charts, doesn't matter) as similar to learning a musical instrument. You can learn the theory, how to read the notes, how to place your fingers, how to breathe etc. but the only thing that will eventually make the instrument sing, is practice. True, some are born with a greater gift than others, but most will tell you that it's 90 percent perspiration and 10 percent inspiration.


Getting the "feel" of where a stock is going to go, when looking at a chart, is no different. This is why it's just as much an art as a science. You need to practice, practice, practice! This exercise will upload the theory into your subconscious. After a while, you will just "know" what works and what to be wary of. You will also learn the value of patience, waiting for the right setup and timing your entry.


It's a true saying that "the most profitable skill you can ever master is the skill of trading". I remember master chartist and options trader, Nik Halik, saying at one of his seminars, that he paper traded 10 years of historical data. Other 'gurus' have similar stories.

To discover more about Nik Halik and his views on paper trading, visit http://www.nikhalikreview.com