This is Step 5 of CashFlow Avenue's 7 Simple Steps to Financial Freedom and Wealth Building.

STEP 5 Arm Yourself with Options Trading Knowledge

Today, we move forward to understanding the business of Options Trading. Just like when we get into any new business, we have to equip ourselves with knowledge of the business. Many amateur traders pay the ultimate price by messing with their hard earned risk capital and end up losing all their money. In any business, when you do that, you would be out of the game.

So before you go charging into the market, with the hope of unrealistic profit, please consider educating yourselves with knowledge of the business. You may get lucky a few times, but the luck will run out. Understand that for you to profit, some other trader will lose. Basically, in the equity market, you are, essentially, trading against other traders. It may be against amateurs, professionals, or even institutional trader, which probably explains why most new traders will lose money when they start. In fact, most amateur traders will quit the business before completing the 1 st year.

It is easy to educate yourselves but you would have to pay a small fee to learn how to trade. Just go to www.google.com and search for Options Trading Course and you would be able to get a pretty long list of trading courses available. The biggest problem with trading courses is you may need to take a few months before jumping into action. Also, learning the rules of a game does not necessarily make you a good player. You can teach beginners the rules of poker but it does not mean they can all turn out to be good poker players.

Another simple way, just like any business, is to hire a consultant in your case, an Options Trading Advisory service. There are plenty out there too. Again, when there are too many choices, it can be confusing. To make sure you appoint a consultant or Options Trading Advisor, you should evaluate them on:

Performance how much money have they provided to their subscribers in the short term and long term? Read closely - if they are emphasizing on huge returns on single trades or overall monthly portfolio gains. Be cautious of advisory services that boast impressive returns per trade because they obviously are not reporting their huge losses. It is important that you evaluate their monthly performance rather than on per trade basis. It is pointless to have excellent returns per trade but still losing money end of every month.

Trading Style - do they provide high risk trading or steady income building strategy? High returns mirror the risks. If you are an aggressive trader, this might be suitable. If you are planning for early retirement, or your childs education fund, then this is something too risky.

Customer Service try writing a mail to them and understand their response time. You want to know that they are there for you when you need them. Whats the point of having a lawyer but when you are in jail, you cant find them.

Stop Loss understand if capital preservation is priority. You would not want to follow an advice that will cause you substantial losses. When the chips are down, there must be an exit plan. This is easy to spot by going through the website. Is the website emphasizing more on profits or on capital preservation?

Number of Trade Recommendations be cautious of websites that provide too many recommendations. It reflects on their confidence in their suggestions. As rule of thumb, you should not be holding more than 8 positions at any time. Moreover, it is unrealistic to hold so many positions simultaneously you may not have enough capital and you cannot monitor all of your trades.

Motivation this is an important factor. When following trade recommendations, you need to know if there is any motivation behind the trade signal. Use only Advisory Services that invest together with you. That way you are sure that your consultant is also facing the same risk.

Trade Holding Period understand how long before you can expect to see profit. Gone are the days of long term investing. Do not get into the hold and pray trap. Many advisory services will hide or delay losses by not closing losing positions. Ideally you should hold and close a position not longer than 60 days.

With these as guidelines, you can now identify and appoint a reliable Options Advisory Service as your business consultant. There maybe a few that qualifies. Choose wisely.

Now, with expert knowledge behind you, it is time to move to the next step

STEP 6: Time to Execute Its Show Time

Copyright 2005 William Tan