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.
If there’s one thing that everyone who follows me should know, it’s how adamant I am about having rules and a plan.
I write about it in these articles.
Alpha Hunters subscribers read it in my emails and hear me discuss it in my webinars and videos.
And I drive the point home often in my YouTube Hood Talk videos.
So, I’ll assume you’re following rules and a written trading plan.
If not, all I can say is “good luck,” and I hope you change your ways before you blow up your account.
But I digress…
Humans are emotional creatures. Perhaps nothing shows this more clearly than how we trade and whether or not we follow our rules.
I highly suggest adding your feelings, especially those that led you to deviate from your plan to your trading journal.
Did you get out of a trade too early and break your rules?
Ask yourself why.
It’s perfectly reasonable to make a note that you got a little scared because the market took a bit of a dip. You’d planned to hold through the pullback and add contracts at a lower price, but instead, you took some meager profits and got out.
We’ve all done it.
To add insult to injury, you saw that stock rally the following day, bouncing off its 13 EMA just like you’d predicted.
Rather than making an 80% gain on two call options, we closed out only one at 15%.
Making notes about why you exit trades, especially when you disregard your rules, is necessary for improvement.
Through this tiny bit of introspection, you’ll learn which situations trigger your emotions. And the more you understand yourself, the better emotional control you’ll develop.
Here are some other examples:
Why did you hold onto that loser for a 75% loss when your rules said get out at -25%?
I had a hunch and hoped the position would recover.
Why did you hold that bull put spread through earnings and take a complete loss?
I was in a hurry and forgot to set an alert to get out before earnings.
Why did you not sell half your position for a 150% gain when the stock shot up like a rocket?
I was greedy and wanted to get more money.
Obviously, all these answers represent mistakes you made. The key isn’t to celebrate them but to acknowledge them and learn how different trading situations affect you.
Few things are more important in trading than self-knowledge.
It’s arguably more important than technical analysis data or trade mechanics. Honing your trade set-ups, profit-taking criteria, and risk management techniques is honestly simple.
If you have this data, all you need to do is evaluate what works, or if you have me as your coach, ask questions.
I tell my subscribers frequently – “That’s why I’m here.”
And I can also help you with your emotional triggers. I would make a massive bet that there’s nothing you’ll experience that I haven’t already in my 20 years of trading.
However, it’s the emotional part that’s often the most challenging to adjust.
It takes reflection and effort on your part.
No one else can do this for you.
Your ultimate long-term goal is to altogether remove your emotions from your trading process…to be as calm as a Zen monk.
Personal work on your specific emotional triggers is the only way to approach this mindset.
To be perfectly honest, it’s impossible to entirely remove emotions. Still, the more we manage this during our trading journey, the more profitable we’ll become.
There are many vital aspects to success in this business.
However, the most important one is you.