Part 2: Rational Analysis And Stock Option Trading

Provided By Ultimate Trading Systems

How to come out on top when stock option trading

The defining characteristic that separates the consistent stock option trading winners from everyone else is this: The winners have attained a unique set of attitudes that allows them to remain disciplined, focused, and, above all, confident in spite of adverse conditions. As a result, they are no longer susceptible to the common fears and stock option trading errors that plague everyone else.

Everyone involved in stock option trading ends up learning something about the markets; very few people involved in stock option trading ever learn the attitudes that are absolutely essential to becoming a consistent winner. Just as people can learn to perfect the proper technique for swinging a golf club or tennis racket, their consistency, or lack of it, will without a doubt come from their attitude.

Traders who become consistent and disciplined in stock option trading usually experience a great deal of pain (both emotional and financial) before they acquire the attitude that allows them to function effectively in a market environment.

The rare exceptions are usually those who were born into successful stock option trading families or who started their trading careers under the guidance of someone who understood the true nature of stock option trading, and, just as important, knew how to teach it.

Why are emotional pain and financial disaster common in stock option trading? The simple answer is that most of us weren't fortunate enough to start our stock option trading careers with the proper guidance. However, the reasons go much deeper than this. stock option trading is filled with contradictions in thinking that make it extremely difficult to learn how to be successful.

Financial and emotional disaster are common in stock option trading because many of the perspectives, attitudes, and principles that would otherwise make perfect sense and work quite well in our daily lives have the opposite effect in the stock option trading environment. They just don't work. Not knowing this, most traders start their careers with a fundamental lack of understanding of what it means to be a trader, the skills that are involved, and the depth to which those skills need to be developed.

Here is a prime example of what we’re talking about: stock option trading is inherently risky. No trade has a guaranteed outcome; therefore, the possibility of being wrong and losing money is always present. So when you execute a trade, can you consider yourself a risk-taker? Even though this may sound like a trick question, it is not.

The logical answer to the question is, absolutely, yes. If you engage in an activity that is inherently risky, then you must be a risk-taker. This is a perfectly reasonable assumption for anyone involved in stock option trading to make. In fact, not only do virtually all traders make this assumption, but most traders take pride in thinking of themselves as risk-takers.

The problem is that this assumption couldn't be further from the truth. Of course, involving yourself in stock option trading is taking a risk when executing a trade, but that doesn't mean that you are correspondingly accepting that risk. In other words, all trades are risky because the outcomes are probable — they aren’t guaranteed. But do most of those involved in stock option trading really believe they are taking a risk when they execute a trade? Have they really accepted that the trade has a non-guaranteed, probable outcome? Furthermore, have they fully accepted the possible consequences?

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