Mental Capital


Date: 9/2/2021
Author: Chris Hood


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.

As a trading coach, I encounter many new traders who have portfolios they simply cannot manage.

They have far too many trades.

I may have 80 or more positions going at once because I’m a professional trader. Decades of experience and well-designed alert systems keep me in the loop.

I also spend a full 8-10 hours in front of my computer each day.

My guess is that very few of you are in this situation.

Each trade you place requires not only planning but management. So you’ll need to keep constant tabs on your portfolio.

Some trades may be long-term but deserve a daily glance. Those with nearer expirations, particularly within a couple of weeks, need attention.

When will you take profits, exit, roll, or make other adjustments?

Do you know? Did you check?

Most traders consider cash as their only capital. Still, we have another kind, MENTAL CAPTIAL – our brains can only attend to so much at one time.

Given your lifestyle, how many trades can you keep tabs on at once?

Most likely far fewer than you have right now.

So do an inventory of your personality, skill level, and lifestyle. Find out how many different positions make you comfortable as a trader.

Comfort equals confidence and leads to success.

Every trader, you included, is unique. So you have to fit your portfolio to your personality. If you don’t, then you’re going to be an unprofitable, emotional wreck.

Keep this in mind as you develop (and modify) your trading plan.

Obviously, there are extremes.

Just as you shouldn’t put on so many positions that you’re overwhelmed with data, neither can you sit back and always wait for the perfect trade.

You’ll never make any money if you aren’t participating.

Options trades are based on probability, so you’ll need to have enough trades with your key set-ups to allow your long-term win percentages to play out.

So how can you determine the number of trades that work best for you?

Trial and error, my friend.

Make a plan, see how you respond emotionally, then make the adjustments.

I’m sorry, but I can’t tell you the correct answer. You know you much better than I ever will. However, you do need a process for determining the right portfolio size.

There is no substitute for experience here.

As always, paper trading before risking your capital is critical. Take it seriously, and you’ll have an idea of what you can handle.

I insist on this for a reason.

You need to develop a strategy before you start playing the game with real money.

The only downside is that you’ll never have the same emotional response to trading when there’s no money on the line.

So at some point, you’ll need to be in the trenches with the bullets flying all around you.

You’ll have to put yourself in a situation where every action has real consequences to your hard-earned cash. Otherwise, you’ll never learn to control your emotions.

Understand that each loss you take is a lesson.

Just keep your position size small, and you’ll pay far less tuition for your trading education. If you don’t learn from your mistakes, you’ll only repeat them.

Just as investing guru Charlie Munger said:

“It is totally unproductive to think the world has been unfair to you. Every tough stretch is an opportunity.”

It may take a bit of unpleasantness to find your comfort zone.

When do you find it, and it’s making you money, then stay there.


Chris Hood



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