This is a question that every option trader needs to ask themselves, especially those traders that are 'stressed out' and losing more often than they are winning. This is because when you have an option trading system that you are truly comfortable with i.e. you have backtested it extensively and paper traded it on live market prices, you have built a solid foundation for your long-term success. This is due to the psychological advantage of 'objectivity' that an option trading system that you know and trust provides. When we follow a precise set of trading rules that we have confidence in: - We feel no pressure pushing us to trade.
- We trade without fear or the need to be right. - We trade what we see, not what we think. - We know in advance 'exactly' what we will do in 'any' market scenario and we have already 'committed' to doing it.
- We are not focused on how much 'money' we may or may not make, but rather on 'trading well'. If the above points describe you and your trading equity is growing consistently, then congratulations, you have found a good option trading system that fits your psychology and risk profile. Your option trading system and your psychology are 'in sync'.
This is fundamental to your long-term success as an option trader. If however, you feel that you fall short of the above criteria, then I would suggest that you stop live trading immediately (if you are) and go back and continue backtesting/paper trading your option trading system. You may need to adjust your trading rules as you test but when you finally have a trading system that performs consistently well over time (that you have traded up, down and sideways) on a select group of stocks, you will have the 'confidence' to put your money into the market with a 'winning' trading psychology. This is absolutely critical because as the old Wall Street adage goes, "Scared money never wins!" The good news is that you can alleviate 'fear in option trading' by following a trading system that you know and trust, including sound money management and by detaching completely to the money in your trading account. Once you reach a place of both consistent peace and consistent profits in your trading, then you will know that both your trading system and your trading pyschology are in sync. Your long-term success depends on this 'harmony'.
James Thomas is a successful private option trader and creator of http://www.option-trading-tips.blogspot.com - an informative resource full of useful option trading tips, including free video tutorials.