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.
