Dealing with options trading frustrations

It's often said that the two greatest secrets to success in options trading is:

1. Patience
2. Money Management

I can't stress this enough: Master the principles of patience and money management, or the options market will master you!

The only thing that separates the winners or losers in this game is how well you hold your head together, and think clearly when the market or trade isn't going your way.

If you don't know how to deal with frustration when trading options, you'll lose your capital faster than you can say "Where's my money at?"

I know, I've been there. Losing $8000 dollars in a month doesn't do wonders for the ego. Worse, if you learn nothing from your losses, your string of setbacks in future option trades is almost guaranteed.

How many times have you had the feeling that the options market knows exactly when you've entered, and what positions you've taken, and then it goes against you? Superstitions aside, it's understandable that we feel this way, especially after a string of losses (they add pretty quickly, don't they?) but since you're on your way to mastery of the options game, you can't allow these thoughts to defeat you.

The first thing you need to do when the odds are stacked up against you is to remember this rule: Do not ever give any position you have any love. If it didn't work, and all signs are saying that you shouldn't go in on this stock again, then don't. Do not get hung up on a name. Move on. There are many more profitable stocks and trades that are waiting for you out there.

Always follow your trading plan. What - are you telling me you don't have one? Remember my story about losing $8000 in a month? Well, I didn't have a trading plan. Wait, I did - my plan was to make money and become rich fast. Doesn't sound much like a plan, does it?

Moving on to you, start constructing a trading plan pronto if you want to ensure your survival in options trading. Contrary to what most people think, a trading plan isn't one that's going to make you rich yesterday. No. no and no. A trading plan helps keep your financial boat afloat.

If you can preserve your capital for at least a year, executing on disciplined and well-researched trades will ensure that your instincts are sharpened, and the wealth of trading experience is what will put you on the road to eventual wealth. Without the trading plan though, you're not going to survive long enough to amass that wealth of trading experience and instincts.

One practical tidbit that seems to be ignored by most traders who don't do well is this: None of your trading positions should make up more than 2% of your trading capital. I don't know why almost nobody takes this advice to heed. Perhaps it's because all of us are too caught up in the idea of The One Big Thing.

Wake up, it doesn't exist. The trading plan and risk management is what will keep you in the game long enough to one day make the amount of money you wanted to make. Which do you think is the way forward - staking 80% of your capital on one trade (yeah, that one big thing), or having 50 well-researched trades, each taking up only 2% of your capital? I don't need to give you the answer to this question do I?

With 50, well-researched option positions, and remembering to cut your losses according to your trading plan, you start to focus on your trading system as a whole, rather than being banged up (and frustrated) on your losers. So what if you have 30 losers? You caught your losses on them, didn't you? And you're left with 20 winners - cool beans!

You want your gains to outnumber your losses, and once your account is starting to grow at a healthy rate, your losses become unimportant. Crucially, you start to think like a true business person, always seeking out new investment opportunities. Investments which turns sour are simply done away with, while the good ones are nurtured. You can't get to this level without risk diversification, and that, my friend, is the secret behind those who win, and those who're still wondering what hit them.

Take trading holidays when the need arises. Regular employees have annual holidays, why not you and your trades? A good reason to have a trading holiday where you stop all trading activity is if your entire account dropped a certain percentage. Stop trading immediately, don't get emotional. Examine why your account dropped. Re-analyze your trading system and your assumptions.

Another reason to take a trading holiday is when the market simply isn't cooperating. Yes it happens. When it's choppy and there's no clear direction, why trade? Because you think someone else is making money and you should get your cut too? Nonsense - yeah, at any given moment, somebody is making money, but let me tell you that nobody is consistently making any significant amounts of money during these periods.

So, stop your trading, relax, learn up more trading stuff and sharpen your skills. When the market is ready, those who are prepared (financially, emotionally and intellectually) can then come in and share in the trading spoils.

Conclusion

In options trading, those who get frustrated easily are sure to lose in the end. Their thoughts are riddled with regrets "If only I had ...", "But I was sure that this position should ..." and so on and so forth.

Realize, quickly, that the market doesn't know who you are or care for your thoughts. There will always be more losers than winners, and if you want to come out winning, make sure you master your emotions, have a trading plan and put a money and risk management policy in place. Simply put, you will come out a winner because the masses refuse to put into practice these basic elements.