Saturday, December 30, 2006

Using Someone Else's Method

In my previous post I stressed the importance of developing your own method. However, everyone needs to start somewhere, therefore most people start out using someone else's method. There are many different methods for trading covered calls out there. Some are in books, some are taught in seminars and some are website services. All of these methods have their own specific rules and they usually insist that you follow their rules in order to be successful. That's because the rules were developed, tested, and refined, through knowledge and experience, and have proven to work for the person who developed them. If I were selling my method I would also insist that people follow my rules, since they've worked for me.

Some people are very successful trading someone else's method because they're comfortable with the method and the rules. However, some people fail, usually because they don't follow the rules, and they end up quiting and look for another method to follow, which usually ends in the same result.

It's hard to follow someone else's rules, especially if you're not comfortable with them. So, if you're trading someone else's method you need to adapt it to your own personality and style of investing. The way to do that is through knowledge and experience. That's basically what I did to develop my own method. I studied various covered call methods and tried various strategies, by putting on small positions, and eventually ended up with my own method.

If you're currently trading someone else's method and find yourself having problems following all the rules, then perhaps there's some aspect of the method that you're not completely comfortable with. You should analyze the method and rules, in detail, and determine which parts you're comfortable with and which parts you're not. Then focus on the parts you're not comfortable with and try to determine why. Perhaps you don't fully understand the reason behind a specific rule. In that case, you should discuss it with the developer to get a better understanding. Perhaps you disagree with the reason behind the rule or think there may be a better way to address it.

Whatever the reason, you should learn all you can about investing and trading covered calls so you can address the problem and come up with your own solution. You can start by reading some or all of the books listed on this blog. Then experiment with small trades and try different strategies for initial positions and adjustments. Through this knowledge and experience you'll be able to either modify someone else's method to suit you or develop your own. In either case, you should end up with a method that you're completely comfortable with and can follow religiously, without hesitation or second guessing.