Yes. I know. But it’s not a typo.
As of this year, I’ve been in options for 29 years. And do you know what my objective is for 2022?
It’s to get better at trading.
You’d think I’d be over that, seeing as it’s been my objective every year for, well, 29 years. But I’m not. Once you get to the point you think you know everything you’ve won lost.
One of my favorite quotes of all time is by a scholar and gentleman (and a guy who looked great in a toga) by the name of Socrates, and it goes something like this, “The only thing I know, is I know nothing.”
Arrogant traders don’t last long. The market humbles all. So, I’m always trying to learn. …And always will.
Trading Lessons Learned
That said, one of the things I’m implementing this year on my Trading Logs spreadsheet is a Trading Lessons Learned column.
The way I set up my Trading Logs Is I have a tab for each option strategy I am focusing on and I have columns for things like: Entry date, exit date, what the trade is, quantity, P/L, P/L%, trade management plan, position sizing (I talked about my option trade position sizing using the Trading Logs in this past blog post.) and more. It’s a little different setup for each option strategy. But that’s the gist of it. Then at the end of each year, I start a new one and file the old trading log way.
Now, I’m adding a Trading Lessons Learned column to every tab. And I plan to put something in the column for every trade.
Learning to Trade
It’s an ongoing process, and we learn from both our winners and our losers. One could argue there’s probably more learning to trade data from our losers than our winners—but both are valuable.
A common mistake in evaluating trading results is purely looking at the P/L. Trading is a statistical endeavor. It’s very much like gambling in a casino. Every bet is an element of chance, but the house has an edge. Option trading is a lot like that. Except I’d say the edge / skill element is bigger in trading and the randomness / luck element is somewhat smaller than playing craps, for example.
Here are some examples of the sort of notes one might put in the Trading Lessons Learned column:
- Chased the trade on the entry (or exit)
- Didn’t check to see when earnings were
- Cross checked (momentum trade) against RSI and found it helpful, test this more
- Didn’t double check trade before sending and had the wrong option strike price (hopefully no one has to write this one)
- Remembered to look at this (momentum) trade on multiple time frames; seems 15-minute candles was most helpful (or whatever it is you discover)
- Solid trade analysis, even in hindsight, but got unlucky (it happens)
- Played this trade too loose, but got lucky (yep, it can go both ways)
- Didn’t consider the sector strength / direction (on a directional trade)
The exact notes you put here will be unique to each option trade, but when you start seeing a pattern / repeat notes, you’ll find things you’re doing wrong or right and can adapt your methodology going forward.
The lessons you learn in 2022 will make you a better trader in 2023 and your trading career going forward. And that, my friend, is powerful stuff.
Founder and President
Market Taker Mentoring, Inc.