“Mean Reversion Trading” by Nishant Pant is a deep dive into the world of options trading. I am new to the options trading scene, and this book provided a lot of information I needed.
Trading options can be quite lucrative; however, you must balance fear and greed daily. You can use a hefty amount of leverage to make your cash flow move faster than normal.
Mean reversion trading uses technical analysis to generate information on upcoming trades. You want to look for stocks that are far from their “mean” and will turn toward going back to standard trading patterns.
1) Avoid trading before an earnings call. The timeline around earnings tends to make stocks trade outside of their typical pattern, meaning you can lose big.
2) You can blow up your account with one or two bad decisions. It is an excellent choice to move money out of your brokerage account routinely to save some principal.
3) Use technical analysis like Bollinger bands and Relative Strength Index (RSI) to determine where your stock is inside its trading pattern. It may be ripe for a mean reversion trade if it is far outside of its mean.
4) Only trade 30% of your account at one time. If you have a large account, use 15%. This prevents you from blowing up your account on bad news or a significant event.
5) Trade on different days to see if any new development occurs throughout the week. Also, boredom is a trader’s worst nightmare, so trading regularly keeps you sharp.
The author has increased a $2,500 options account to $25,000 multiple times over the last few years.
With options, you can routinely double your money within one month. However, it takes great discipline and knowledge.
Write down each trade you take, and cut your losers at 50%. A winner should double your trade amount; one winner negates two losers.
Mean reversion trading increases your odds significantly by using technical analysis to follow trading patterns. Options trading can be a great source of income if you have the patience and persistence to follow set rules and guidelines.
This book outlines the plan to increase a portfolio from $2,500 to $25,000 in 1-2 years. I want to try this action plan a year from now. This is a must-read book for prospective options traders. Good Luck!
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