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Why Most People Fail at Options Trading


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  • Why Most People Fail at Options Trading

    Have you or your friends ever attended an options seminar, learned how "simple" it is to make a high income from options trading but yet when you did it for real, you failed to make any money consistently?

    Indeed, from my observation in this industry over the past decade, I have noticed that the chances of success for beginner options traders are extremely slim. In options trading, as in everything else in life, only a very small percentage of people make money consistently from options trading. This is true even amongst beginners who attended the same options courses. Yes, even with participants of the same options course, some will actually make some really good profit from options trading while most will not. What went wrong?

    I explored the reasons for failure at options trading and narrowed it down to two main reasons; 1. Lack of a proven and systematic approach which novices to finance and economics can follow and trade with. 2, Lack of a robust trading mentality.

    Let's admit it, most beginner options traders are no professionals. In fact, most of them don't even have a background in finance nor economics and don't understand why things happen the way they do in the stock market or the economy. For such beginners, learning to pick stocks and analyze trades can be a disastrous attempt due to their lack of complete knowledge. This is where a lot of beginners fail. In fact, trading discretionarily by picking stocks based on a bunch of theories that may not work together in the first place or pure gut feel is a disaster even for professionals. In order for beginners to become consistent in options trading, a robust, complete and objective trading system and framework which has every angle covered needs to be introduced such that all they need to do is follow rules and make very limited subjective decisions nor analysis. Such a framework must include an objective method of identifying potential trading opportunities, objective method of identifying the correct options to trade with in order to optimize the risk/reward of the trade, an objective method of determining if an entry should be made as well as objective profit taking and stop loss policies. Without an objective and proven system and framework, no non-professional options trading beginners can hope to generate any consistent return.

    Now, having that kind of "designed for beginners" trading system is merely the foundation of success in options trading. What really determines long term success is the trading mentality of the traders themselves. What's the use of a trading system when the trader is incapable of following rules? Indeed, there are many options trading beginners who has made such losses in the past that they are generally ruled by fear and emotion to the extend that they are unable to follow rules at all. When the methodology they are following requires them to make an entry when a stock breaks out, a voice in their heads will stop them from buying saying that the stock might just drop back down. Then they will watch the stock continue upwards until it's too late to make an entry.

    There is a certain psychological profile needed of successful options traders and that includes the ability to listen to and follow the rules of their chosen trading system and methodology no matter how their emotions are firing up. They also need the ability to detach themselves from the money they are trading, just like a doctor's detachment to the cries of their patients. A strong trading mentality comes not by nature. It is something that can be trained. Great options traders takes care of the way they run their life in generally and focuses on stress reduction and proper rest in the way their daily routine are run. Conversely, there are also traders who have been through so much pain in the stock market that they are generally unable to control their emotions and trade in a disciplined manner anymore. Yes, sadly, there are people who should just stay away from options trading.

    Chances are good that an options trading system that is suitable for beginners can be found. It is the trading mentality that most beginners don't possess. In fact, in my observation, only about 1 in 10 people have what it takes to make it in options trading psychologically. The rest are fearful; fear of losing money, fear of their overall financial condition. It is exactly these fears that spoils trades and takes them deeper into their conditions.

    Are there any solutions to the psychological issues of options trading?

    The only way for most beginner options traders to become successful is to go through an extensive paper trading mentoring program over a significant period of time. Paper trading helps builds confidence if the trading system is good and over time convinces the trader that the system makes better decisions consistently than they can. Only when such faith is built can the options trader find the faith to follow their rules to the letter. Such period of training could take 6 months to a year. Sadly, most options trading courses are one weekend long these days. Real money triggers emotions which spoils trades if faith in the trading system has not been built up over a period of paper trading.

    Options trading is like racing an F1 car. There is no short cut. Competence and proficiency needs to be built up over a significant length of training without which no secret formula can hope to work.

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    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

    College is here to read more about the college scam!

    Good KARMA and positive energy abound.

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