Depending on where you started your options education, trade frequency was either glossed over or talked about in-depth. Here at Option Alpha, we've suggested for almost a decade now that to find success you need to be placing trades almost daily. But does this frequent trading activity classify us as "day traders" in the options market? If so, what are the implications that could impact your account? If not, how do we increase our trade frequency if we are not day trading options? In today's show I present my overall framework as to why we feel, and our research confirms, that consistently averaging around the market price through move active trading ends up being more consistent and reliable long-term.
What is a Day Trader?
- A day trader is someone who executes a trade and gets in and out on the exact same day.
- In most cases, you get flagged as a day trader if you've day traded three or more times.
- To pattern day trade you need more capital in your account — $25,000 in most cases.
Does Trading Every Day Make You a Day Trader?
- The obvious answer is "no".
- However, you should be trying to trade every single day if you can.
- Your ability to generate consistent and steady income trading is directly tied to how frequently you can trade.
- You have to treat your options trading as a business, and "open the doors" to your business every single day.
- When you do not trade often, it places a lot of emphasis on those few times a year that you do trade.
The Benefits of Trading Daily/More Often
- If you trade and invest in small increments, it takes some start up time to get the investment going.
- Once it does, you can average with the market as your account moves up or down with the market.
- Time and picking an entry point becomes more or less irrelevant
- You no longer need all of your emphasis on picking one good entry point because you now have the luxury of picking many entry points over time.
- This allows you the flexibility, if you can invest in anything you want, to move and shift your money as you see fit.
Why You Should Not Care About the Market Direction
- When you are trading so often, market direction becomes irrelevant on a longer time frame.
- If the market goes down, you can adjust your portfolio by making a new trade around the changed market price.
- This type of trading is exactly what high frequency trading shops and hedge funds do; they trade very often and always keep their Delta or Beta practically neutral.
- If you make trades every day, or at least as often as you possibly can, you will find more success in the long run.
- In the long run, as long as you trade often with a high probability of success, you will move and flow with the market.