Option trading is like the game of golf. You can never be perfect at it, but you can always get better. As I like to say, “the one thing I cannot teach as an option trader is experience.” The obvious question, then, is how does one gain that experience. There are two ways, and one is obvious: by trading. The other is by reviewing your trades, and the best way to do that is to record them. 

Record Your Trades

The first thing an option trader needs to do is screen capture the trade at the moment of entry. This includes the stock chart, option chain and maybe even the IV (implied volatility) levels. If the trade is held for several days, screens shots of the option chain or chains can be taken periodically to help you understand how and why things change. Once the trade is exited, screenshots should be taken again to compare the start and end of the trade. Lastly, depending on the strategy, screenshots can be taken after the trade was exited to help you analyze what could have been. Of course, this applies to profitable and, probably more so, losing positions.

Review Your Trades

Now that you have the concrete evidence of your trading, it's time to look at the positive results or lack thereof. Do this part when the market is closed so your full attention will be on the review process. Label the chart and option chain with what strategy was used. Where did your plan call for entry, stop and target? Then where did you enter and exit? Were there any discrepancies? If there were, you need to find out why. If the trade was stopped out but you followed your plan, was it just part of the odds or is there something you can do to improve the odds for next time? Reviewing the option chains will only make you smarter as a trader. I learned so much more on my own by understanding how premiums changed due to the underlying moving, time passing and IV changes.

Journal Your Trades

The last part of this review process is to keep a trade journal. This is where you will keep your statistical trading records. Review every trade and be your toughest critic. Work to eliminate your most common mistakes. You might find that an option strategy you like is not your most profitable. That is what journaling your trades can reveal.

Set a goal for yourself like having five consecutive option trades without committing the same mistake. When you accomplish that, you will be a step closer to becoming the trader you know you can be. And just because you may not be turning a consistent profit does not mean you are not improving. Real growth comes from beneath and many times before option traders show a profit.

Final Thoughts

Reviewing your trades can do wonders to help you improve as an option trader. The key to becoming successful and growing as a trader is to acknowledge your wins while also learning from your losses because that is what gives you a chance to be profitable in the end.

John Kmiecik, Market Taker Mentoring