by A.J. Brown

Too many people underestimate the emotional component of option trading. They think it will be easy to pull out when they’re losing money… and ride a winner when it’s making money.

But (and this is a BIG “but”) what we think will be easy for us to do is, in actuality, extremely difficult.

This is why I’m a strong advocate of trading rules that help you keep your emotions in check. Without firm rules to follow, you may soon find yourself on an emotional roller coaster that quickly drains your trading account.

When option traders finally put real money in the market, they’re likely to experience one of these common emotional responses…

But first, if I may, I’d like to share a quote about investing that inspired this post in the first place.

“Investing in stocks is definitely the best course of action, just so long as you’re the kind of person who can will him/herself to stop in the middle of an orgasm.” -Jeff Yeager, The Ultimate Cheapskate’s Road Map to True Riches, p. 204

When I read this, I laughed out loud. Because I think it’s fairly accurate in describing the amount of self-control an option trader must have.

* When a trade is moving in your favor, you have to “pull out” even though your trade may still look like it’s going to make more money.

* And when you’re in a losing trade, you have to exit even when it looks like the trade might turn round.

No doubt, this is challenging for anybody to do.

But not so hard if you develop and FOLLOW a strict set of trading rules.

Now, get this. Most new traders allow their emotions to control their trading.

For instance, if a new trader is in a trade that’s moving in his favor, he will probably exit his position too early. His emotions will tell him, “You’re making bank… you better get out while your trade is still up.”

This is greed talking. They listen, so they take profits early.

Losing trades are different. When a new trader sees a trade move against him, he will tend to wait too long before getting out. His emotions will tell him, “Your account is only down a little bit. There’s still time for this to turn around. Don’t worry, you’ll make money.”

Naturally, they’re listening to the voice of fear, the fear of loss. If they listen, they will experience substantial losses.

If you ever hope to become a professional trader, you must learn to control your emotions. Ignore greed and fear of loss, no matter how loud they yell at you.

And this is why I strongly recommend that you use trading rules to override your emotions and dictate when you enter and exit trades.

About the Author:
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