Who doesn’t want to improve as an option trader? It 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.” How do you get that experience? There are two ways: by trading and by reviewing your trades. And the place to start is to record your trades.

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 and option chain. If the trade is held for several days, screens shots can be taken periodically to help you understand what is happening on the charts and to the options. Once the trade is exited, screen shots should be taken again to compare the start and end of the trade. Lastly, depending on the strategy, screen shots can be taken after the trade was exited to help you analyze what could have been. Of course, this applies to profitable and losing positions.

Review

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 after the close of the market so your full attention will be on the review process. Label the chart and option chain with the strategy you used. Where did your plan call for entry, stop and target? Where did you actually enter and exit? Were there any discrepancies? If so, 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?

You Might Be Shocked

One other option (no pun intended) that can prove to a trader the importance of having a trading plan is to simply put a contingent order on the trade. Consider having two orders, one for profit and one for loss, and don’t do anything until either is triggered (if your broker allows it). The hardest thing to do is to not overmanage the trade and let it takes its course. In essence, you now have a trading plan, and odds are it will be an improvement over managing the trade without a plan or letting your emotions do it for you. You might find out how much better you do by using this strategy versus what you had been doing. Trust me, I can almost guarantee it.

Journaling Your Trades

The last part of this review process is to start a trading 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. Set a goal for yourself such as to have five consecutive option trades without committing that same mistake. When you have accomplished that, you will be one step closer to becoming the trader you know you can be. And just because you still may not be turning a consistent profit does not mean you are not improving. Real growth comes from beneath the surface and many times before option traders show a profit.

Finally
 
The key to becoming successful and growing as a trader is to acknowledge your winners and also learn from your losses because that is what will make you profitable in the end. You will learn more from your losses, I promise you, and those losses will set the tone for your improvement.

John Kmiecik, Market Taker Mentoring