This has been one of the most volatile times we have seen in the market in about five years. And sometimes, because of market uncertainty or wider than normal bid/ask spreads, it may be hard to profit and remain disciplined as a trader. As you hear me say plenty of times, no position is sometimes the best position. Traders need to consider sitting on their hands and doing nothing at times because cash is a position. Just because you are not trading or trading less, however, does not mean you should be doing nothing. It’s actually an exceptional time to review your past option trades.
Create a Review Schedule
Traders should have a schedule to review their trades and should do so when the market is closed. When you don’t think you are putting the odds on your side enough to warrant a position, it could be a perfect time to go a little bit deeper with your review. A market like we have seen recently is the perfect excuse to get you started if you have not done so already. I know you may have put off writing that trading plan for a long time, but I hope you have finally completed this critical task. If you haven’t, you’re not doing yourself any favors.
Getting Started Can Be Tough
Getting started reviewing your trades may be the hardest part. Once you start, you may not like what you see. Begin by taking some screenshots of the charts and option chain when the trade is initiated. Then take a few throughout the trade and, of course, when the trade is exited. Did the trade work out as expected, or did you do something that was not planned? Was it a bad trade that still profited? These are just a few of the questions you might ask yourself as you review your trades postmortem.
Compare Strategies Postmortem
It’s also really important to compare different strategies and their results. You might be surprised by what you find. I certainly have been in the past, and that is what formed me into the option trader I am today. You might not think you like or do well at vertical credit spreads, for example. But after reviewing the ones you have done, you may find out you fared better than expected and did worse on another strategy you thought you favored.
Final Thoughts
Again, all this reviewing needs to be done when the market is closed so your full attention is on the review rather than the active market. Even without a position on, if the market is open you may feel the need to look for an entry. If you review your trades on a regular basis, you will put yourself in a better position and improve your trading. It works. I promise!
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
