How to make profits in Options trading in India is a popular question among new and intermediate Options traders. However, making profits in Options trading has many factors. We will look into various practical factors that you can consider to make profits in options trading in India.
How to Make Profits in Options Trading in India: Know What You Want
First, introspect to find out what you want from Options trading. Besides, find out your risk tolerance. By risk tolerance, I mean how much you are okay to lose in the market every month or annually.
After that, you need to understand what kind of a trader you are: a scalper, an intraday trader, or a swing trader. Most importantly, it's important to think practically, even though you may come across many online video tutorials with big claims.
How to Make Profits in Options Trading in India: Learn Technical Analysis
Once you determine the trading type, the next best thing you can do is get the basics right. You can start by learning price-action basics. In price-action, you will learn essential aspects of trading like trends, support and resistance, demand and supply, market structure, volume, and momentum analysis.
Once you know the essential price action basics, you can proceed with price patterns, candlestick patterns, technical indicators, and multiple timeframe analysis. Further, you can learn Options Chain, Options Greeks, and PCR.
How to Make Profits in Options Trading in India: Build Your Trading Strategy
After you are familiar with technical analysis, the next best thing you can do is work on building your trading strategy based on what you understand of technical analysis. When you build your trading strategy, try to keep it simple. You can create a strategy based on price action, candlestick patterns, or technical indicators.
Once you build a trading strategy, it's essential to have faith in it. Besides, it's important not to live in false belief that a trading strategy will work with 100% accuracy every time. Practically, no strategies will work all the time. There will be times when your strategy may not work. You must accept your Loss and exit the market on such a day.
How to Make Profits in Options Trading in India: Backtest Your Strategy
After you create a trading strategy, you must backtest it until you are convinced you can implement it for real money. You can backtest your trading strategy on historical data (while the market remains closed) and test it on real-time data when the market is live. In both cases, you don't have to spend a single penny.
You can use the Long and Short Position tools on the Spot chart to enter a position. Next, you can adjust the Stop Loss and Target according to your trading setup. It's also known as paper trading and is an excellent way of practicing trading without putting real money in line.
How to Make Profits in Options Trading in India: Never Trade without a Stop Loss
Options trading is a highly risky form of trading, and if you trade without a Stop Loss, chances are that the market will wipe out your entire capital in a single trading session. You must understand that controlling our emotions born out of fear and greed is difficult without a Stop Loss. Stop Loss is essential to money management and helps you avoid big losses.
Besides, some traders like to be a little innovative about their Stop Losses, and they trail their Stop Losses to lock in profit and, at the same time, be in the trade. They keep traiing it when the price moves further in their favor until the price hits the Stop Loss. However, by the time the price hits the Stop Loss, you will be already at good profits with this technique. The technique is called Trailing Stop Loss.
How to Make Profits in Options Trading in India: Have a Good Money Management Plan
Losses are common in any form of trading, and Options trading is no different. While we don't have much control over profits, we can do a lot about minimizing losses; this is where money management comes into play.
Here are steps to follow to build your money management plan:
- Determine your Losses and Profit ratio per day; a 1:2 ratio is better.
- Decide the maximum number of trades per day: 1 to 2 trades at the max is considered good.
- Determine the Stop loss and target per trade; a 1:2 to 1:4 ratio is better in Options trading.
- Plan on where to lock your profits with Trailing Stop loss.
- You can also consider the brokerage on your maximum number of daily trades to know your net profit or Loss.
However, simply building a money management plan is not enough, and you must ensure that you never violate your plan at any cost. Once you succeed in following your money management plan religiously, your trading success will begin. One important thing is to set a practical target and trail your SL to achieve it. Setting an impractically bigger target may turn your winning trades to losing trades.
How to Make Profits in Options Trading in India: Choose a Reliable Trading Platform
Once you have a trading setup and a money management plan, you only need a reliable trading platform. Zerodha is one of the most reliable trading platforms in India. The trading platform comes with a super clean interface and advanced charting tools.
Zerodha has low brokerage charges on Options: ₹20 per executed order. Zerodha's trading application, Kite, works equally well on web and mobile devices with fast order execution and simple position management. Many Options traders in India count on Zerodha every day.
Many new traders make the mistake of taking the technical setup alone as their winning strategy. However, it takes an excellent technical setup and money management to succeed in Options trading. The combination is only possible to achieve if you have a passion for Options trading and desperately want to be a successful trader. When these two factors are in place, you must choose a reliable trading platform.
How to Make Profits in Options Trading: FAQs
What are options in trading?
Options are financial derivatives that give traders the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specified time frame.
How can I make profits in options trading in India?
Profits in options trading can be achieved through various strategies, risk management, and knowledge. Here are some key points:
What are some basic options trading strategies for beginners?
For beginners, it's important to start with simple strategies like buying call or put options, covered calls, or cash-secured puts. These strategies involve limited risk and are easier to understand.
Is it necessary to have a trading plan?
Yes, having a trading plan is crucial. It should include your goals, risk tolerance, entry and exit criteria, and strategies. Following a well-defined plan can help you make informed decisions and manage your trades effectively.
What is implied volatility, and why is it important?
Implied volatility (IV) is a measure of market expectations for future price fluctuations. It's important because it affects option premiums. Traders can profit from IV changes by employing strategies like selling options when IV is high and buying when it's low.
How do I manage risk in options trading?
Risk management is vital. Never risk more than you can afford to lose on a single trade. Use stop-loss orders, diversify your positions, and avoid over-leveraging. Consider using protective strategies like hedging.
What are some common mistakes to avoid in options trading?
Common mistakes include neglecting risk management, not having a clear trading plan, trading without proper knowledge, and letting emotions drive decisions. Avoid these pitfalls to improve your chances of profitability.
Is technical analysis important in options trading?
Technical analysis can be valuable for timing entry and exit points. It involves studying historical price charts and patterns to make informed trading decisions. However, it should be used in conjunction with other analysis methods.
Can I trade options with a small capital in India?
Yes, you can trade options with a small capital, but it's essential to start small and gradually increase your position size as you gain experience. Options provide leverage, but they can also magnify losses if not used wisely.
What resources can I use to learn more about options trading in India?
You can learn about options trading through books, online courses, webinars, and by following reputable financial news sources. Additionally, consider paper trading (simulated trading) to practice without risking real capital.
Is options trading suitable for everyone in India?
Options trading is not suitable for everyone. It involves significant risk, and individuals should have a good understanding of financial markets, risk management, and the ability to handle potential losses before engaging in options trading.
Are there tax implications for options trading profits in India?
Yes, there are tax implications. Profits from options trading are subject to capital gains tax. The tax rate depends on the duration of the investment and whether it's considered short-term or long-term capital gains. Consult a tax professional for specific guidance.
Remember that options trading carries inherent risks, and it's essential to do thorough research and practice responsible trading to increase your chances of making profits in the Indian options market.