The Tao of Trading Trend-Following Options System
Trade profitably in any market condition by following trends and managing risk like a professional
The Tao of Trading system combines trend following with options strategies to create a trading approach that works in both rising and falling markets. The system starts by debunking five Wall Street myths including the idea that buy-and-hold always works and that you need a financial advisor to succeed. It then teaches how to read price action to determine market direction, identify support and resistance levels where price gets stuck, and use mean reversion as an entry timing mechanism. The preferred trading instrument is options because they offer limited downside with unlimited upside potential. The system's high-probability trade setup combines trend identification with mean reversion entry timing and options structure to create trades with favorable risk-reward profiles. Equally important is the trader psychology component: Ree argues that mindset and risk management separate successful traders from failures, drawing parallels to martial arts where technique without mental fortitude is useless. The system emphasizes having a written trading process and following it with discipline.
- Follow the trend because the trend is your friend
- Conventional Wall Street wisdom often serves their interests not yours
- Risk management is more important than trade selection
- Options provide asymmetric risk-reward that favors the trader
- Your trading mindset and psychology determine your success more than any technique
- Learn to read price action and identify trendsStudy price charts to determine whether a stock or market is in an uptrend, downtrend, or trading range. An uptrend consists of higher highs and higher lows. A downtrend consists of lower highs and lower lows. Only trade in the direction of the prevailing trend. Within seconds of looking at a chart you should know whether to look to buy, sell, or avoid.
- Identify support and resistance levelsLearn where price tends to get stuck at levels where buyers and sellers cluster. Support is a price level where buying interest is strong enough to prevent further decline. Resistance is where selling pressure prevents further advance. These levels provide optimal entry and exit points for trades.
- Use mean reversion for entry timingWhen a stock in an uptrend pulls back toward its mean or a support level, this creates a high-probability entry point. Wait for price to come to you rather than chasing it. The combination of trading with the trend and entering on pullbacks significantly improves your win rate.
- Structure trades using options for asymmetric riskUse options to create trades where your maximum loss is defined and limited while your potential profit is unlimited. Options allow you to profit whether markets rise or fall and provide leverage without the unlimited risk of margin trading. Learn to use option spreads to further control risk.
- Follow a written trading process with strict risk managementCreate a written step-by-step process for every trade from identification through entry, management, and exit. Define your maximum risk per trade before entering. Never risk more than a small percentage of your account on any single trade. Follow the process with discipline regardless of emotions.
Ree reveals that Wall Street employees are incentivized to onboard clients and increase assets under management, not to generate better returns. Client-facing employees earn more by gathering new money not by making existing clients wealthier.
Ree draws parallels between trading and Jeet Kune Do martial arts. Just as many martial artists have great technique but crumble when hit, many traders have great setups but crumble when a trade goes against them. Both require mental fortitude backing physical or technical skill.
Simon Ree spent twenty-five years in the finance industry including over a decade in dealing rooms staring at Bloomberg terminals for ten to twelve hours daily. He worked alongside some of the smartest professional traders and consulted with wealthy families across Asia and Australia. He noticed that individual investors consistently failed because they followed conventional wisdom that served Wall Street's interests rather than their own. After leaving the industry in 2017 he wrote this book to share the methods he developed personally for trading profitably in any market condition.