Written by A.J. Brown

Emotional Aspects of Option Trading

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 often imagine is easy (in theory) is harder (in practice) than we think.

Which is why it pays to follow rigid trading rules that “overrule” your emotions. Without them, your emotions may take you for a ride.

Here are a few common emotional responses people have when they first risk real money on a trade…

First, let me share with you a quote I came upon the other day. It’s what inspired this post.

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 you’re in a losing trade, you have to exit even when it looks like the trade might turn around.

Hard stuff, for sure.

But not so hard if you develop and FOLLOW a strict set of trading rules.

Now, new traders tend to let their emotions get the best of them.

When in a winning trade, many new traders jump out too early. Their emotions say, “You’ve made some money; get out while you still can!”

This is greed talking. They listen, so they take profits early.

When in a losing trade, many new traders stay in too long. Their emotions say, “You’ve only lost a little bit. The trade will turn around. Don’t worry.”

This is fear of loss talking. They listen, so they suffer big losses.

If you ever hope to become a professional trader, you must learn to control your emotions. Ignore greed and fear of loss, no matter how loud they yell at you.

Use a solid set of trading rules to govern the emotional component of option trading.

Best regards always,

A.J. Brown

P.S. One easy way to get a solid set of trading rules is to “steal” mine. You can do that here.

3 Responses to “Emotional Aspects of Option Trading”

  1. RichE @ 8:13 pm:

    It’s all about knowing the probabilities not the possibilities.

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  2. Dan @ 7:27 am:

    Good to get additional information from other sources on all of this. Keep the plethora of books and possible video links coming. Information is power! Always enjoy the comments shared here.

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  3. Andy @ 2:08 pm:

    “Ignore greed and fear of loss, no matter how loud they yell at you”. Great advice, which I had read before some losses I incurred. However, I am getting better and have made some decent trades lately. Still it is better to exit with some profits than none at all.

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