Don't Trade While Inattentive

Chew on this. You spend months attending group coaching sessions, going to webinars and poring over stock charts. Most of your valuable free time goes toward studying options theory, and along the way you learn to speak “greek,” too. After paper trading for a while, you decide to put your newly acquired knowledge into practice officially. Stumbling through the first weeks and months of trading with real money, it’s quite common to experience dozens of creative ways to lose money when trading options. Yet, you learn from your mistakes and persist. Showing true grit, you turn the corner, bringing your account out of the red and into a net positive position for the first time. You’re feeling pretty good as your win rate continues to improve and your P&L goes higher and higher. Maybe all this hard work is worth it, you begin to ponder.

Then it happens. While juggling several tasks simultaneously, you discover a trade that makes you feel all warm and fuzzy inside. After further review, and answering your friend’s text messages, you recognize the spread is so juicy that you decide to bump up your size a little higher than normal. As you’re keying in the spread to your execution software, your spouse walks in and starts talking to you. Then just as you’re about to verify the price levels, the phone rings. You think you recognize the number, but it turns out to be another auto warranty company calling to tell you that they extended your coverage options for another year. You do a quick scan of the iron condor spread and click EXECUTE. Instead of selling an iron condor for a credit, however, you somehow managed to accidentally sell it for a debit. Ugh, I feel your pain.

It’s quite disheartening when you make an unforced error when trading. That one little mistake might cost you $2,000, which amounts to a few weeks’ worth of trading profits for many new traders. It’s demoralizing to grind out a half-dozen small wins just to give back all the winnings because of one easily avoidable mistake.

Unfortunately, I know this scenario all too well. I frequently hear from students how unforced errors similar to this scenario play out every day. Folks, if you want to succeed, you cannot be oblivious to the importance of paying attention and staying focused. Recognize how impactful unforced errors are on your bottom line and make it a priority to limit these incidents as much as you can. Don’t trade while inattentive!

Identify the Threats

I have read in numerous publications that Americans are more distracted now than ever before. It doesn’t take a brain surgeon to recognize that when a person has a lot going on simultaneously, their decision-making becomes suboptimal. Everybody is distracted these days by a never-ending stream of texts, emails and pop-up notifications, along with unnecessary pop-ins by our family and friends.

In reality, trading in and of itself is distracting because there are so many moving parts to the process. Having too many charts and technical studies displayed overwhelms the brain. Having too many stocks on your watchlist prevents you from being able to focus on all of them. Even too much clutter on your desk can cause you to lose concentration. We must recognize these threats to figure out a way to mitigate them.

Implement a Trading Plan and Develop Your Processes

I’ve said it before, and I’ll say it again. If you want to succeed at the options trading game, you have to commit time every day to this pursuit. Even if you can only spend one hour, make sure every minute counts. Focus and concentrate for the full amount of time you have. Take notes. Despite what you think of your retention abilities, I am certain that taking copious amounts of notes and journaling trades will help you tremendously over time.

I also value the use of checklists to help keep me focused on the stuff that is important. Running through checklists makes me a more efficient trader and dramatically more productive. Deny all temptations to check your social media during the time you’re trading. Instagram, TikTok or whatever will still be there after the closing bell, I promise.

I start every trading day the same way: by reading a curated list of market-moving, stock watchlist-related news stories at 9 a.m. I get my macro and micro views of the market right from the start, and it sets the tone for the next part of my daily process. I then review the risk I have in my portfolio and compare the positions I have on to the noteworthy stories I’ve just read. Next, I sketch out a plan for unwinding any positions that are approaching my predetermined exit levels. Only after I have tackled these risk management tasks will I allow myself to seek new trades, deploy additional capital and take on additional risk.

By having a plan (and sticking to it) it becomes easier to self-diagnose when you are losing focus and getting off track. Being able to self-regulate and be disciplined is an important step in the evolution and maturation of every trader. When you feel you cannot concentrate, it’s important to acknowledge your condition. Stepping back and regrouping is often a wise thing to do because one must be vigilant and mindful of the dangers of forcing a trade when you’re distracted.

You Are Either a Focused Trader or an Inattentive Trader

Some of the specific things I do to limit distractions include simple things like informing people in my household to refrain from interrupting me. Hanging a DO NOT DISTURB UNDER PENALTY OF DEATH sign on my office door has been amply effective. I turn off notifications on my computer and phone. Speaking of my computer/s, I run two separate machines. One is for email, chat, news and internet access. The other is for trading and trading only.

When I am trading, I focus on the numbers. My job when trading is to pore over spreadsheets, compare charts and technical studies, evaluate volatility levels, identify opportunities, avoid pitfalls, execute optimally, and manage risk responsibly. I do not install any distracting apps or programs on my production trading machine. By limiting installations to trading-related software only, everything runs faster and I do not expose my accounts to hackers. Keeping my trading PC lean and mean helps me concentrate, which positively impacts my win rate. And you know by now that it’s all about the win rate.

Final Thoughts

Trading while inattentive can be very costly and demoralizing, so it’s a good idea to limit distractions, maintain focus and be systematic with your approach to trading options. But being mindful of the things that cause a trader to be inattentive is half the battle. Overcoming distractions is the other, equally important half.

Joe Leska, Market Taker Mentoring

Trader Education