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No matter how skillful or how long you've been doing in your stock
options trading, it's natural to encounter trading losses along the
way. Such trading losses could derive out of our in-experiences, skill
levels and sometimes due to unpredictable market reaction.
It's certainly a harrowing experience to loss money trade after trade
during stock options trading, watching our hard earned money taken away
by the market mercilessly. But painful as these trading losses might
be, we should accept them as obstacles we must overcome in every other
endeavor and pick up the lessons learned from each trading losses.
We should certainly not brood over such losses too long. The longer we
let these losses overcome us, the longer it'll take us to have the
courage to re-enter our stock options trading for the chance to sharpen
our skills further. A stock options trading journey is all about having
the discipline to follow a trading plan and stick to it. If
a trading plan or system yields a losing trade, we have to calmly analyze the
reason behind
this hiccup and refine our trading plan so that we are better
equipped to handle the trade when the same trading scenario turned up again.
Thus, it's important to analyze what we've done wrongly so that we'll
remind ourselves not to commit the same mistakes again. We must accept
losses as part of our stock options trading journey and don't give up
too easily.
Here are some ways to minimize your losses during stock options trading
and how you could learn from them :-
1) Keep Every Trade Within 5% or Less of Your Capital
No matter how confident you are of a particular trade, maintain
a good money management discipline of not committing more than 5% of your capital in any
stock options trading position.
Understand that every trade carries risks. I've picked up some costly
mistakes when I was greedy and plunged a great portion of my capital
into so-called "sure bets" and ended up losing my hard earned money to
the market. Don't be fooled that you could take money easily from the
market. Trading is a professional trait just like any specialized field.
You might take months or even years of trading skills & experiences to
truly understand how the
market works.
Although every technical indicators might line up perfectly for the
so-called "sure-win" trade, things could still go wrong and the market
could react opposite to what you've analyzed. So
never bet on the farm on any "sure-win" trades. On the other hand, if
you maintain every stock options trading position within 5% or less of
your trading capital, even when you encountered a few losing trades,
you would still have balance capital to fight another battle.
2) Jot Down Your Mistakes in Your Trading Journal
I've realized that maintaining a trading journal of all my
trades has been one of the most important step that I've
undertaken in my trading journey. In my trading journal, I would
record detailed analysis of all my stock options trades. I would
study the details of the underlying stocks and record
information like daily trading volume, market capitalization,
Stock Scouter Rating (from MSN MoneyCentral), past earnings
history, gapping history based on earnings announcement etc into
the journal. I would also enter the reasons why I enter or exit a
position.
The trading journal is even more important when I've encountered a losing trade. I would write down explicitly
the reasons
behind the losing trade and the lesson learned from this expensive
mistake. It might be painful and embarrassing when entering such details
at that moment, but you'll be grateful for such an entry when you're
alerted of a similar trading situation when you've lost money before.
So, develop the good habit of recording all your trades in your
trading journal. Most importantly, write down the lessons that
you've learnt from the losing trades so that you will not commit
the same mistakes again.
3) Give and You Shall Receive
I believe in the above statement as I have personally experienced its
truth in my everyday
life. I realize that when I give more, I have the tendency to
receive more. Thus I would like to encourage you to give more,
whether it is in monetary or non-monetary term, if you want to be more
successful in your trading,
Giving could be an act of sharing your trading knowledge, skills or
experiences with fellow traders, giving donation-in-kinds or simply
offering your love or forgiveness. Of course, you should also
devote your efforts
towards sharpening your trading skills each and every day and I'm
sure
the market would reward you for the hard work that you've put in
to understand how it works.
As always, I wish everyone success in your options trading journey.
Yours sincerely
Tony Chai
About Me
Tony Chai has been trading stock options, particularly
US stock options, since he graduated from Live Freely Options Trading
Seminar in year 2004. His stock options trading technique involves
mainly trading options based on earnings gapping analysis. In his
stock options trading web-site,
you'll find a number of informative
articles written by himself and seasoned options traders to
sharpen your stock options trading skills. Tony also record his
stock options trades and his analysis for initiating those options trades in his
stock options trading blog.
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