Is Psychology Important in Options Trading?

Let’s start this short blog with a quick answer…Yes! Psychology is important in most aspects of life including option trading. When I started out as a retail trader, I had no idea how important it would truly be. I quickly learned, although it took me several years to understand how to control my emotions.

Trading is not intuitive for most humans. To accept defeat, in this case an options trading a loss, goes against what you were brought up to believe. As humans, we want to be right because it makes us feel good. But unfortunately, taking losses from time to time is a regular part of successful trading. Having a perfectionist mentality is not going to serve you well as a trader. Trust me, I know!

Having the discipline to not let the emotional trader make the decisions is key. Chasing bad trades or mismanaging trades dooms so many traders. I will often tell my students they need to think of themselves as risk managers before anything else. The process includes always examining whether the current risk is worth the potential reward.

The easiest way to go about gaining discipline is by sitting down and writing a trading plan. You have heard this before undoubtedly, just like I did, but it is true. Then you need to follow the plan and make adjustments as need be -- the timing of trades and maybe cutting down on your profit targets, for example.

There are several books on the psychology of trading available. I am not making any recommendations here, but feel free to pick one up. Knowledge is power, and understanding and controlling your emotions could finally get you over the hump when it comes to profitable trading if it has eluded you.

John Kmiecik, Market Taker Mentoring

Trader Education