Date: 9/28/2021
Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
A vital component of any trade is duration.
For those who trade intraday, options positions could involve same-day expirations.
The idea is to be in and out within a few minutes to a few hours.
Medium-term options traders look to capitalize on the underlying stock’s price action over periods from a few days to a few weeks.
Finally, some traders prefer long-term positions designed to ride long-term trends of a year or more.
Which type of trading is best?
Personally, I do a bit of each.
My portfolio’s exact composition of trade durations depends heavily on market conditions.
As someone relies on winning trades to produce a steady flow of income, I’m not particular. I don’t care if my profits come from riding the trend for months or from a series of day trades.
But you and I are different.
All time frames are relevant and valuable, but each uses different set-ups, strategies, and management techniques.
To find out the proper mix for you, ask yourself the following questions:
Which are most successful for me?
Which fit my lifestyle and personality the best?
Forcing a trading style on yourself that doesn’t jive with your skills and nature is a recipe for disaster.
Here are the advantages and disadvantages of each duration to consider when building your plan.
Day trading requires almost no thought. You select your system then mechanically enter and exit trades when the signals dictate.
Quite a bit of action, but little time for management.
The trade either worked, or it didn’t.
I’ve you’ve developed a winning system as I have, day trading can work wonders for your profits. I especially like it during times of high volatility and market chop.
If I’m a bit short on hitting my cash goals for the week, a few sessions of day trading keeps me moving forward.
The downside is that you won’t always get the signals you want.
It just depends on the market.
You’ll also need to spend the trading day in front of your monitor for this to work well.
Trading in the medium term gives you a bit more room to maneuver.
Positions you plan to hold a couple of weeks allow you more time for management. This includes cutting losses, adding to winners, and changing the trade’s structure.
Profits will also come more quickly.
Under stable and steady bullish market conditions, I typically have quite a few of these trades in my book to maintain a steady income stream.
You aren’t required to sit and watch the screen, but you’ll need to review these positions at the end of each day.
The only problem is that a significant move on the underlying stock against your position will likely kill the trade due to the shorter time frame.
There won’t be enough time for the trade to recover.
So you’ll want to be very consistent and selective on the set-ups you use.
Finally, there’s long-term trend trading, where you attempt to capture major movements in the underlying stock for several months or more.
Trades like this are relatively hands-off, “set it and forget it” positions.
Each position can be reviewed after hours at your leisure. Once you place the trade, there isn’t any need for daily management.
They just work in the background earning you money.
If the market gets volatile or moves against your position the trade can usually recover. You paid a bit more on the option to give yourself time to be right.
It also allows you the greatest flexibility to manage the trade as it progresses.
The downside to trading this way is that it keeps your capital tied up. In addition, the trades might take a long time to pay off.
If you rely on hitting weekly profit targets, these may not be ideal as a primary strategy.
Always consider your own psychology when selecting trade durations.
Day traders must be as mechanical as possible.
Medium-duration traders need excellent timing and agility.
Trend trading requires extreme patience.
You can be a profitable trader using only one trading duration. However, it’s best to focus on the one you excel in while building your skill at the others.
As always, I recommend paper trading for practice.
There’s no point in blowing up your account learning the ropes.
Cheers,
Chris Hood
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