Sunday, October 21, 2007

Do You Have 6 ‘P’?

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After trading for about a year I’ve come out with my own 6 ‘P’ which I think a must have for an Options Trader:

  1. Passion
  2. Patience
  3. Persistence
  4. Perseverance
  5. Psychologically right
  6. Preservation of capital


First and foremost you had to have the passion for options trading. If you do it just for the sack of money you won’t do it wholeheartedly hence it is difficult to become a successful options trader as you might just gamble away your precious capital.

On the other hand, if you love to trade your focus will not be solely on making money but on learning how to do it right. Besides that working hard and having the determination to improve your trading skill, dealing with the aspect of trading psychology and self discipline are the factors to determine if your trades will be successful and profitable.

You will do it everyday without feeling monotonous. You will keep on learning more and wanting to improve yourself and work harder even though you have failed several times.

I love options trading very much and I treat it as a profession, a business. Learning how to trade is like taking an honours degree course. I do something related to trading everyday and I keep studying, refining and improving.


Be patience, don’t jump into live trading too soon before you can even gain consistence profit from virtual trading.

It is not wise to just jump into the market just because you have not done anything for the past couple of days or hours and feel like you need to do something to make some money. This can really play havoc to your success.

If there is no trade set-ups just stay out of the market, do something else, go and catch a movie, go to the gym for some workout, etc. You’re here to make money by quality trades but not quantity. It is better to be outside of the market and wanted to go in rather then to be in the market and wanted to go out. We always look for reasons not to enter rather than reasons to enter the market.

I used to be very greedy and take what ever set-ups I saw and end up entered many trades with a few difference strategies at once. I realized that it is hard to manage and very confusing. Some times I even forget which trade is with which strategy.

All the great traders have the patience to wait for losing periods to end and for profits to emerge and to only take signals that are consistent with their methodology.

You can’t force profits in timescales you just need to be patient. Period.


Don’t ever give up! I have seen many traders who gave up after having a few losses. They felt disappointed and don’t believe in trading anymore. You must understand that losing is part of the game as long as it is well managed. Take small loses and maximize the profit and you will be fine.

Don’t stop learning. Learn or do something related to options trading everyday. I’m not saying that you should keep learning new strategy or system. Just stick to maximum 3 strategies that you believe in. A decent system with 55% success rate will give you consistent income in the long run.

It is essential to review and revise your past trades especially those losing one. Learn from your mistakes, refining and improving from there. It has been a great help by keeping a journal like what I am doing with this blog.


Would you be able to continue trading if your money was totally wiped out several times? Many successful traders will because they have the perseverance to continue and that will lead them to path of success.

Believe it or not I have actually lost all my capital (real money) twice in 6 months when I first started options trading. I would have give up if I don’t have the perseverance to move on.

Losing all your money is not pleasant, for sure, but a necessary experience for many to eventually succeed.

Psychologically right

To have a right mindset and right psychological aspect is very important. Believe in yourself and the system that you have chosen.

Many options trading courses teach us how to trade but not on handling our emotion. How are we going to overcome our fear (of losing) and greed (of taking more profit)? We tend to hold on a losing trade and hope that it will make a reversal one day; cut the profit short before it reaches our target. This is the most common mistake that many options traders usually make.

We must try to trade like a machine without emotion involved as much as possible. Be discipline, follow the rules strictly. I know it is hard but it is not impossible. You can do it by practicing using virtual trading until you developed such a habit of following the rules of your system.

The real reason so few succeed in trading is because the traits required for success are almost exclusively psychological.(Gary Smith)

Preservation of capital

This is part of money management. Preserve your capital is essential, keep your losses minimum and capture greater profits. Don’t use all your capital to trade at any one time. I always use half of my capital to put into positions and leave another half as cash. This is to prevent from stop out of the market too soon.

Focus more on managing risk. Playing great defense is as important as playing great offense.

Most traders fail because they don’t know how to tale calculated risks. Poor money management is one of the major reasons novice traders lose.


Remember, it is not the system or the strategy of trading but you yourself that lead to your trading success.

Tuesday, October 02, 2007

How you can reduce the effects of emotion and negative psychology?

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The answer is discipline! Without it you will lose.

Discipline in the following three areas of trading will ultimately determine your trading success.


The successful trader never rests on past successes, or believes that his trading ability has peaked.

He is always learning, practicing his decision-making skills and honing them until they become second nature. Then he can react faster than a speeding bullet, but with the benefit of superior human judgment.

Trading Rules

The successful trader develops a set of trading rules - a plan - that he follows religiously. This guides his decision-making at all times. If a trader`s plan dictates that it is time to exit a stock, the trader will exit that trade and not wait a minute longer.


Successful traders display an extraordinary amount of self control.

Keeping emotions constantly in check, the disciplined trader is immune to the highs and lows that attend large market swings, whether panic, in a downturn, or of euphoria. I will show you how to learn the secrets of discipline.

These components may seem like a tall order. But that is exactly the point; trading is difficult work and serious business, demanding time, patience and a great deal of hard work. Master these components and you are on your way to success. Step off the straight-and-narrow path of discipline you will meet certain financial ruin.

The key message about discipline is that without it you will lose. It is that simple. You may think, "I understand and I will be disciplined in my trading." Nevertheless, this is where fear and greed enter into the picture. Shortly after this, an emotional rollercoaster ensures the stability of your character.

Can Discipline Be Learned?

The big question here is this: Can you develop the discipline you do not have naturally? I believe the answer is "yes, you can," but you must have the necessary commitment to do so.
Clearly, discipline can be developed. You only need to look at an army training program for confirmation of this fact.

However, it is one thing to have a vast and experienced organization bearing down on you and being prepared to do whatever it takes to make its point. It is quite another thing to do it yourself in the comfort of your own home, with all of the distractions of daily life.
Clearly, self-discipline is a requirement even to start this process.

Ultimately, undisciplined behavior is going to be punished by the market, either by direct losses or by the loss of profits which otherwise have been available.

Private traders who persevere do have external stimuli that will help the process. However, the market does not help as much as it might, because of the principle of random reinforcement. It is the market`s tendency to reward bad behavior from time to time.

This crucial fact is one of the reasons why it takes so long to learn how to trade. You need to realize there is no point in having a system if you are not going to follow it.

To speed up the process of learned discipline, you can read the book Dr. Alexander Elder, author of "Trading for a Living".

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