Let’s play trading psychologist and patient. If you have not figured it out by now, trading is psychological warfare for a human. Psychology is a huge part of trading. Without overcoming your emotional fears and being disciplined, you have little chance of being successful at trading options. So, when the market is moving lower, as it has been over the past several months, I ask traders, have you taken or even thought about any bearish trades?
Investor’s Mentality
The reason I ask this question is because most option swing traders have an investor’s mentality. They are only looking for stocks and other underlyings to go higher. You might be surprised to find out that a majority of option traders rarely if ever think about bearish trades. Like I said, it is an investor’s mentality. It has been ingrained in our heads to look for bullish opportunities. I can count on one hand how many investors I know who have shorted stock more than a day expecting the stock to continue to move lower so they can buy it back cheaper for a profit in the future.
Do I Have to Take Bearish Trades?
There is nothing wrong with not taking a bearish trade, let’s be clear. But if you only think about bullish opportunities, you are really doing yourself a disservice. I find traders who think this way (only bullish) get torn apart when the market sells off as it has done recently. Clearly, most traders will lose money when the market turns lower. But those who refuse to take a bearish trade or only look for bullish trades no matter what lose more.
Need to Be Comfortable
So before going any further, ask yourself, are you comfortable looking for and taking bearish option trades? If the answer is no, consider sitting on your hands when the market or your stock is not set up for a bullish opportunity. Try to break the habit and ask yourself, why would I not take this opportunity for a bullish trade? In other words, try to talk yourself out of the trade. Of course, the best method is to be a well-diversified option trader who can find and trade bullish, bearish and neutral opportunities. I am here to help.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.
