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.
It happens like clockwork.
Whenever the market pulls back a little bit, and newer traders see red on the screen, they freak out.
This is when I get panicked calls from new subscribers. I feel like a therapist talking them off the ledge of liquidating long positions that have a great chance of ending up winners.
My first piece of advice is, “Calm down.”
The market doesn’t go straight up every day. That’s not how it works.
Even the strongest of trends will occasionally have a dip. Red on the screen for a day or so is usually nothing to worry about.
The world isn’t ending. And seldom is a 50 point drop in the SPX the start of a market crash.
It just seems that way if you’ve only got a few months of trading under your belt.
My next bit of advice, once the panic subsides, is this:
“You should be salivating like a hungry dog looking at a steak when you see pullbacks. Red means opportunity.”
Trading requires you to rewire your brain a bit.
It’s natural for people to fear losing money. And unfortunately, the bright red of most broker platforms only serves to increase the horror.
And when a stock is running, it makes sense to hop on the train. Green means go.
Great traders aren’t like this.
Red excites them, and they’re bowing gracefully out on the green.
By its very nature, the value of an options portfolio will have some big swings. Remember, there’s more than the underlying stock value that moves an options position.
Temporary fluctuations in volatility produce massive differences in value.
A position that’s down 30% one day might end up a 70% winner just a few days later. You just have to know how the trades work.
I know this from personal experience.
Once I was a nervous wreck just like you, and I learned to deal with it. I LEARNED to deal with it.
Reading about options is ok.
You’ll get the fundamentals and be able to place trades. But books are static and unemotional – they can only take you so far.
When I was learning, I did my share of reading and learning by trial and error. But it cost me a lot of money.
The most important lessons I learned came from getting advice from professional traders. Though never a formal student, I nevertheless consider quite a few of them as mentors.
It would have been way less costly than just to pay them to teach me than feed the greedy market.
I realized there’s nothing quite as powerful and comforting as having someone give you some stoic advice when you think the world is ending.
That’s why I love coaching others so much.
I suppose I’m just trying to ‘pay it forward.’
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