As you have noticed throughout adulthood, there are certain types of people that are well suited for certain types of jobs. In fact, with many areas of work, it is easy to stereotype the person based on their position. Think about a doctor, an attorney, or even a police officer. There are some that stand out from the crowd in each of those positions, but a majority of people in them require an extremely specific kind of mindset.
Successful investors are no different. You have to be able to avoid emotional trading, you need to understand your risk tolerance, and you might even need to have a longer ring finger. When it comes to options trading, many investors stand out as the successful ones tend to share some of the same psychological traits.
Emotional Options Trading = Failure
Our previous article goes a bit more in-depth about emotional trading, but it warrants another mention here. Why? Well, because options traders stand to miss out on tremendous gains and suffer enormous losses whenever their emotions get in the way.
For example, because some options contracts give them the option, and not the obligation, nothing is forcing them to act on the contracts. Also, the fear of missing out can cause them to cash in on these contracts too early, resulting in potentially missed profits.
Options Traders Take Risks
It is one thing to buy a few shares of stock with the hopes that the value will go up over the next few months or few years. It is another thing to put thousands and thousands of dollars on the line as a way of placing a bet that this stock will go up to a specific amount, or down by a specific amount, over a somewhat short time. Options traders have to take risks to be successful. Otherwise, they are merely out of their element, and they will not last long.
Creatures Of Habit
On the surface, it may seem like options traders merely get lucky now and then. And when they do get lucky, that luck makes up for any past losses. In reality, options traders are creatures of habit, and it is these habits that can make them successful.
Successful options traders make it a habit to always check the markets, analyze data, consider the sizing of their positions, and adjust their portfolio as needed. They always have an end goal in mind and, once they have found something that works, they will repeat it over and over until they achieve their end goal.
They Know Failures Are Inevitable
Because nobody is psychic, and options traders are not an exception to this rule, they understand that failure is an option. The markets can swing up or down, and when they do, options traders are among the group most affected by these changes. Options traders are also affected whenever the market stays the same.
They know that there are times where a position is only going to get worse, and they must decide to bail out. A decision based on logic, not emotions. Understanding the fact that options can be wildly unpredictable makes it easier for them to accept failure along the way. Not only do they expect failures to come periodically, but they look forward to them as a learning experience. And speaking of learning experiences.
Successful Options Traders Are Active Learners
Over the course of the year, it is not uncommon for as many as 75%+ of all options traders for that year to realize losses. They are bound to happen. But a successful options trader looks at these losses as a learning experience. They see where they went wrong, learn what they could have done differently, and implement this into their next set of contracts.
The economy and the financial markets are always changing, and they are ever-evolving. In fact, the only constant is the fact that they will change. By being an active learner, successful options traders are able to tweak their current strategies and to identify new opportunities as they arise. Opportunities that many other investors will either pass over or simply might not have even recognized.
Risk Disclosure: Trading financial instruments such as but not limited to off-exchange foreign currencies, cryptocurrency (cryptocurrencies), Futures, ETFs, Equities and Indexes contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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