Many option traders underestimate how difficult it is to manage emotions when trading. They automatically assume they will have the self-control to get out of a losing trade asap... and ride a winning trade for all it's worth.
But (and this is a BIG "but") what we think will be easy for us to do is, in actuality, extremely difficult.
Which is why it pays to follow rigid trading rules that "overrule" your emotions. Without them, your emotions may take you for a ride.
When an option trader finally risks his own money on a real trade, his emotions might cause him to respond in the following manner...
But first, if I may, I'd like to share a quote about investing that inspired this post in the first place.
"Investing in stocks is definitely the best course of action, just so long as you're the kind of person who can will him/herself to stop in the middle of an orgasm." -Jeff Yeager, The Ultimate Cheapskate's Road Map to True Riches, p. 204
This quote made me laugh. Because it says something about how us option traders must force ourselves to behave.
* When a trade is moving in your favor, you have to "pull out" even though your trade may still look like it's going to make more money.
* And when you're in a losing trade, you have to exit even when it looks like the trade might turn round.
Hard stuff, for sure.
But not so hard if you develop and FOLLOW a strict set of trading rules.
Now, get this. Most new traders allow their emotions to control their trading.
When in a winning trade, many new traders jump out too early. Their emotions say, "You've made some money; get out while you still can!"
Greed is very persuasive. Most traders will listen to their greed and liquidate their positions way too early.
When in a losing trade, many new traders stay in too long. Their emotions say, "You've only lost a little bit. The trade will turn around. Don't worry."
This is fear of loss talking. They listen, so they suffer big losses.
If you ever hope to become a professional trader, you must learn to control your emotions. Ignore greed and fear of loss, no matter how loud they yell at you.
Use a solid set of trading rules to govern the emotional component of option trading. - 15431
But (and this is a BIG "but") what we think will be easy for us to do is, in actuality, extremely difficult.
Which is why it pays to follow rigid trading rules that "overrule" your emotions. Without them, your emotions may take you for a ride.
When an option trader finally risks his own money on a real trade, his emotions might cause him to respond in the following manner...
But first, if I may, I'd like to share a quote about investing that inspired this post in the first place.
"Investing in stocks is definitely the best course of action, just so long as you're the kind of person who can will him/herself to stop in the middle of an orgasm." -Jeff Yeager, The Ultimate Cheapskate's Road Map to True Riches, p. 204
This quote made me laugh. Because it says something about how us option traders must force ourselves to behave.
* When a trade is moving in your favor, you have to "pull out" even though your trade may still look like it's going to make more money.
* And when you're in a losing trade, you have to exit even when it looks like the trade might turn round.
Hard stuff, for sure.
But not so hard if you develop and FOLLOW a strict set of trading rules.
Now, get this. Most new traders allow their emotions to control their trading.
When in a winning trade, many new traders jump out too early. Their emotions say, "You've made some money; get out while you still can!"
Greed is very persuasive. Most traders will listen to their greed and liquidate their positions way too early.
When in a losing trade, many new traders stay in too long. Their emotions say, "You've only lost a little bit. The trade will turn around. Don't worry."
This is fear of loss talking. They listen, so they suffer big losses.
If you ever hope to become a professional trader, you must learn to control your emotions. Ignore greed and fear of loss, no matter how loud they yell at you.
Use a solid set of trading rules to govern the emotional component of option trading. - 15431
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