There are a lot of sayings I like when it comes to option trading. Many have been passed on for several decades, and many of them I have come up with on my own as an options instructor. But my latest one may be the most important to adhere to because it can make the difference between being successful as an options trader or not. Let’s take a quick look.
Discipline and Risk Management
For about six months, I have been telling traders that a third to half their trades will make money regardless of whether they are disciplined risk managers. A third to half of their trades will lose money as well, but it is that third to half in between that can make the difference. We all know that many of our trades will lose money just because they did not go our way, and many will make money even if we don’t manage them properly. But if traders are disciplined and follow a well-written trading plan, they have a much better chance of consistently extracting money from the market.
We all have heard the estimated percentages of option traders who will never consistently make money trading. Some estimates go as high as 90%. To me, how you control that middle third to half of in-between trades can make the difference. It is removing risk not only for profit but also for loss in a disciplined manner. That is easier said than done. But for option traders who think about risk and are disciplined, those trades that are not certain winners or losers can really end the frustration of not achieving the level of success they had envisioned. Knowing when to take small losses or small profits at critical times can be the key to success.
Follow Your Trading Plan
It really is simple. Put in the work and write and follow a well-thought-out trading plan and you have a much better chance of reducing risk and capturing profits on those third to half of in-between trades that can elevate you to making consistent profits.
