5 Bad Habits of An Options Trader (and the Solutions)
- shaggadm
- Sep 15, 2020
- 4 min read
Updated: Jan 1, 2023
Get rid of these habits and you'll exponentially sharpen your trading edge.
Introduction
What is a habit?
A habit is something you do perpetually on an hourly, daily, weekly pattern.
A habit is something you do often and will do in the future.
Some habits are beneficial to you, i.e brushing your teeth.
Building positive habits can increase the quality of your life long term.
Some habits can be negative to you, i.e smoking, over trading, over leveraging, ecetera.
What are the bad habits we can get rid of in Options Trading?
Here are 5 habits you can cut to drastically improve your options trading performance!
1. Over Trading
A very common reason I see many traders fail is that they take too many trades.
Unless you have an algorithm producing trade signals like we do at SmartOptions®, how can you expect to make 20 manual trades a day and profit from most of them?
Moreover, how can you manage 20 trades?
Unless you have a team watching each individual position, you cant manage too many options trades without diluting the precision and profitability of each trade.
When you over trade, you increase your overall risk and risk deploying your capital way to early.
Solution to Over Trading
The simple but highly efficient solution to over trading is to limit the number of trades you execute per month to 10 or less trades.
If you focus on 10 great trades a month, it will increase your overall profitability. We can not recommend this advice enough.
Executing less trades per month will also allow you to be patient for the right set up and conditions to appear for the perfect trades.
Follow this solution and you'll see a huge increase in your trade performance.
2. Playing 7 Day Or Less Expiring Options.
We all have executed an options trade that expires in 7 days or less.
These "weeklies" options contracts are highly volatile due to the low amount of date til expiry and other factors.
While the high ROI of weeklies can be alluring, these are very risky plays.
The most common reason a trader blows up their account is playing weeklies!
No one can predict short term price movement 100% of the time. Thats why weeklies are so dangerous.
Solution
Trade options that have at least 30 days or more from expiry. This allows enough time to cushion any short term price movements.
3. Trading While Under the Influence.
I know a few people who smoke/ drink and trade at the same time. This is definitely not smart.
Anything that dulls your sharp mind should not be taken while trading options or researching new ideas.
The market makers already have an edge against regular options traders, do not increase their edge by dulling your mind.
Solution
Have a clear mind when trading options. Options are volatile enough as in. You need to be on top of your game to watch your positions and execute trades to be profitable over the long term. Meditation and exercise can help increase blood flow to your brain to sharpen your mind even further when you trade. Highly recommended.
4. Using Too Much Capital for 1 Trade
Greed can be good and bad. Greed makes you productive and helps you look for new opportunities.
Greed also causes you to get into trades at the top and put your whole balance in 1 trade for that sweet payoff.
Greed is the reason why many traders blow up their portfolio trading weeklies with all their capital.
Using too much capital for 1 trade is not for successful traders like you and me.
A few big capital losers in a row can end your whole trading career, and thats not a joke.
By using too much capital in 1 trade, no matter how confident you are, you are risking your future as a trader!
Solution
Have a set budget per trade and stick to it. Use a low amount of capital allocation per trade and give yourself multiple chances to hit that big ROI trade.
5. Relying on your gut instead of data.
Your gut can be a good indicator for trading.
If you feel bad in a trade, it usually is bad.
If you feel great in a trade, it usually means prices will go down soon.
Did you catch that?
If you feel good in your gut you'll most likely lose, if you feel bad in your gut, you're still most likely to lose!
Our bodies are not a good indicator of price direction.
What really predicts price direction is data!
Follow the right data instead of your emotions and you will succeed more times than not.
Solution
Do not rely on your gut feelings. Instead be analytical and have a set plan you follow.
Follow data instead of your gut.
At our company, SmartOptions® we provide valuable real-time options data! If someone puts $10M into an option expiring in 7 days, we want in on that!
Now you can follow the smart options money as well.
Conclusion
There are many habits you build on your journey. By adding positive habits and getting rid of the bad ones, you can sharpen your traders edge!
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