Option Trading Emotions: How I Control My Emotions for Option Trading in 2023
Believe it or not, the #1 reason why traders blow up their account is due to the lack of controlling their emotions–that’s my reason for my biggest losses.
What the market giveth, the market taketh away.
I’m going to share a story of how my emotions got in the way of my trading and how it blew up my account in early 2022.
The Original Game Plan Before Trading
During all of 2020 I was a swing trader with equity, and in January of 2021 I decided to learn how to become an option trader. I saw the potential that one can make as an option trader, and of course I wanted to learn it right away.
So I spent almost the whole year of 2021 learning indicators & tools, chart patterns, and trading strategies–I also dabbled with trades to do trial and error on all the learning I’ve been doing.
In the beginning of October 2021, I decided to buckle down, take my learnings, and grow my account to $100,000 from $25,000.
Here was the trading game plan:
- 15 to 20 percent Stop Loss
- Start scaling out at 30 percent gains
- Position sizing no more than 10 percent of portfolio size
- 1 to 4 trades per day
Out of the four rules, I followed one to a tee & that was my stop loss rule. I broke my the other two rules every now and then.
The 2 Emotions That Ruled Over My Trading
The #1 reason why traders blow up their trading account is because of fear & greed. This is when you stop being a technical trader and become an emotional trader–this happens when you let your emotions impact the decisions on your trades.
In between October to December of 2021, I got a couple trades that hit 1,000% in profits & a 500% gainer. Which spiked my account, and also gave me an over confidence in my ability to trade–making feel invincible.
As I was hitting this home runners, I got more greedy with my trades. I started sizing up on my trades a lot more than the 10 percent rule.
Because of my greed, I started to fizzle out the 30 percent taking profits rule and tried to hit as many home runners as I can.
My greed also led to fear–not in losing trades but the fear of missing out on a play, which led to overtrading and breaking my 4 max trading rule.
How My Emotions Affected My Trading
I felt like I was going to alpha centauri with my trades until mid December.
During the middle of December, I started taking loss after loss–but I was still following my stop loss rule until…
After taking beating after beating with all this euphoria running in me, I started taking revenge trades and was staying a float–only a recipe for disaster.
My 10 percent size per trade rule was thrown out the window, as well as my stop loss rule was fizzling out. I was biting more than what my account could chew.
In less than 4 weeks, I lost all the gains that were made, because of my emotions. It put me in a very depress state of mind, and it gave me imposter syndrome.
The loss of money was upsetting, but what really put me down was the doubt of my own skills as a trader. It felt like nothing I learned or did was working.
Recovering From a Blown Up Account
When I went back under my initial investment, I took a break for a few months to reflect on the decisions I’ve made.
During 2020 to 2021, the stock market consumed so much of my life that I had put other things I enjoy doing aside–I started to exercise more, learned to play the piano, and played a lot of soccer. It was exactly what I needed to recover.
I’m the type of person that quits just because I had a bad month. Breaks are always necessary to recalibrate, and reflect on the decisions you’ve made.
So I came back with some additional rules that have served me well during this year.
3 Rules To Control Your Emotions During Trading
Part of this process of becoming a successful trader, is to just practice to control your emotions and your trading strategy.
1. Stick to Your Trading Strategy
If you want to do this for the long run and not gamble your hard earned money, it’s important that you become the house and NOT the gambler.
Sticking to a proper trading strategy will give your proper risk management that makes it hard to take you out of the game. With proper risk management & knowing your technical analysis like how to spot Supply & Demand zones, you will be a better trader than most.
2. Close the Computer After 3 Losses
There are those days that you can have the perfect setup & the perfect entry but the universe has a funny way of just flipping a reversal and stopping you out of the trade.
It happens to every trader–the best advice is that after 3 losses, close the computer and go do something else that you’re interested in.
The last thing you want to do is revenge trade, and try to chase plays. There will always be another setup the next day.
3. No Trading After the First Hour of the Market
Part of being a option trader is to have more control of your time. Don’t let the market have control of your time. Make your cash the first hour of market hours, and go live your best life!
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