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Stock Options Trading - Accept Losses as Part of the Journey
No matter how skillful or how long you've been doing in your stock options trading, it's natural to encounter trading losses along the way. Such trading losses could derive out of our inexperiences, skill levels and sometimes due to unpredictable market reaction.
We should certainly not brood over such losses too long. The longer we let these losses overcome us, the longer it'll take us to have the courage to re-enter our stock options trading for the chance to sharpen our skills further. A stock options trading journey is all about having the discipline to follow a trading plan and stick to it. If it sometimes yields a losing trade, we have to analyze the cause behind this hiccup and refine our trading plan so that we would be prepared the next time the same scenario turned up again.
Thus, it's important to analyze where we've done wrong so that we become wiser and won't commit the same mistakes again. We must accept losses as part of our stock options trading journey and don't give up too easily.
Here are some ways to minimize your losses during stock options trading and how you could learn from them :-
1) Keep every trade to 5% or less of your capital
No matter how confident you are of a particular trade, maintain the discipline of not committing more than 5% of your capital in any stock options trading position.
Understand that every trade carries risks. I've picked up some costly mistakes when I was greedy and plunged a great portion of my capital into so-called "sure bets" and ended up losing my hard earned money to the market. Don't be fooled that you could take money easily from the market. Trading is a professional trait just like any specialized field and you require years of skills amp; experiences to understand how the market works.
Although every technical indicators may line up perfectly for the so-called "sure-win" trade, things could still go wrong and the market could react opposite to what you've analyzed and you lost money. So never "bet the farm" on any "sure-win" trades. On the other hand, if you maintain every stock options trading position within 5% or less of your trading capital, even when you encountered a few losing trades, you would still have balance capital to fight another battle.
2) Jot down your mistakes in your trading journal
I've realized that maintaining a trading journal of all my trades has been one of the most important step that I've undertaken in my trading journey. In my trading journal, I would record detailed analysis of all my stock options trades. I would study the details of the underlying security ie.stocks and record information like daily trading volume, market capitalization, Stock Scouter Rating (from MSN MoneyCentral), past earnings history, gapping history based on earnings announcement etc into the journal. I would also enter the reasons why I enter or exit a position.
Whenever I encountered a losing trade, the journal would become even more significant. I would write down explicitly the reasons behind the losing trade and what I've learned from this expensive mistake. It might be painful when these details were entered during that moment, but when I was alerted to similar chart patterns where I had lost money previously, I was glad that I was reminded by the entry to not commit the same mistake again.
So, develop the good habit of recording all your trades in your trading journal. Most importantly, write down the lessons that you've learnt from the losing trades so that you will not commit them again.
3) Give and You Shall Receive
I think you would have heard the above phrase before. Although I'm no expert in this philosophy, I somehow experienced in my real life some truth in this statement. I realize that I tend to receive more when I naturally give more. So I believe if we want to be more successful in our trading, we should also develop the virtue of giving, though not necessary only in monetary terms. Giving could be donation-in-kinds or simply an act of love or forgiveness. Of course, you should definitely give your devotion towards sharpening your trading skills each and everyday because the market would reward you in return for putting in your efforts to understand how it works.
As always, I wish everyone successful in his or her stock options trading journey.