Too many people underestimate the emotional component of option trading. They think it will be easy to pull out when they're losing money... and ride a winner when it's making money.
But (and this is a BIG "but") what we think will be easy for us to do is, in actuality, extremely difficult.
This is why I'm a strong advocate of trading rules that help you keep your emotions in check. Without firm rules to follow, you may soon find yourself on an emotional roller coaster that quickly drains your trading account.
Here are a few common emotional responses people have when they first risk real money on a trade...
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 you're in a profitable trade, you must liquidate your position even though the prospect for more profits may still appear strong.
* And when a trade moves against you, you still have to close your position, even if you think the situation could turn around in you favor.
Hard stuff, for sure.
But not as hard as you may think IF -- and only if -- you create strong trading rules that you adhere to all the time.
Now, get this. Most new traders allow their emotions to control their trading.
For instance, if a new trader is in a trade that's moving in his favor, he will probably exit his position too early. His emotions will tell him, "You're making bank... you better get out while your trade is still up."
This is greed talking. Usually, they listen and wind up taking profits too early.
On the flip side, when new traders are in a losing trade, they will tend to stay in too long. As their emotions rage, they hear, "Hey, don't worry, this trade still has time to recover. You've only lost a fraction of your investment. Stay in for just a little bit longer."
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.
And this is why I strongly recommend that you use trading rules to override your emotions and dictate when you enter and exit trades. - 15224
But (and this is a BIG "but") what we think will be easy for us to do is, in actuality, extremely difficult.
This is why I'm a strong advocate of trading rules that help you keep your emotions in check. Without firm rules to follow, you may soon find yourself on an emotional roller coaster that quickly drains your trading account.
Here are a few common emotional responses people have when they first risk real money on a trade...
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 you're in a profitable trade, you must liquidate your position even though the prospect for more profits may still appear strong.
* And when a trade moves against you, you still have to close your position, even if you think the situation could turn around in you favor.
Hard stuff, for sure.
But not as hard as you may think IF -- and only if -- you create strong trading rules that you adhere to all the time.
Now, get this. Most new traders allow their emotions to control their trading.
For instance, if a new trader is in a trade that's moving in his favor, he will probably exit his position too early. His emotions will tell him, "You're making bank... you better get out while your trade is still up."
This is greed talking. Usually, they listen and wind up taking profits too early.
On the flip side, when new traders are in a losing trade, they will tend to stay in too long. As their emotions rage, they hear, "Hey, don't worry, this trade still has time to recover. You've only lost a fraction of your investment. Stay in for just a little bit longer."
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.
And this is why I strongly recommend that you use trading rules to override your emotions and dictate when you enter and exit trades. - 15224
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