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 what we imagine will be easy to do is actually much harder in real life.
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 I want to share a quote I stumbled upon while reading a book.
"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 winning trade, you have to exit when things are still looking relatively good.
* 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.
This is definitely NOT easy.
But not so hard if you develop and FOLLOW a strict set of trading rules.
Here's the thing: The newer the trader, the more likely it will be that he will let his emotions control him.
Example: New traders are notorious for taking profits too early. That's because their "inner miser" is saying, "Hey, you've made enough money. You should get out while you still can."
This is greed talking. They listen, so they take profits early.
Losing trades are different. When a new trader sees a trade move against him, he will tend to wait too long before getting out. His emotions will tell him, "Your account is only down a little bit. There's still time for this to turn around. Don't worry, you'll make money."
This is the fear of loss speaking out. When traders listen, they lose big time.
If you dream of becoming an option trader with a million-dollar trading account, then you must learn how to ignore your emotions, even when fear and greed are demanding that you listen to them.
Remember: Always use a tested-and-proven set of trading rules to control when you get into a trade and when you get out.
