Options Trading for Beginners: Psychology 101

Let’s explore today one of the most important aspect of Options Trading for Beginners.

I am talking about the Psychology behind the profession of Trading that is often underestimated.

The idea of venturing into new areas has a unique effect on each one of us.

We are either cautious in our first steps or completely oblivious to any potential risk.

Options Trading for Beginners: Are you an ISFP, ENTJ, or else ?

One of the most renowned Personality test used all the way even in Corporation nowadays is the Myers-Briggs Personality Type Indicator Test.

The outcome of the test assigns one attribute to each one of us within the four major categories shown below: Energy, Decisions, Attention and Lifestyle.

Table in Options Trading for Beginners article that Summarizes 4 domains of the Myers-Briggs Personality Test: Energy, Decisions, Attention and Lifestyle

As an example, an ISFP type is someone who is an Introvert when it comes to Energy, who uses Intuition in decisions, making, who is a Thinker and rather Perceptive in their lifestyle.

Next, let me show you how  this Personality Test  correlates with the activity of Options trading for beginners.

Options Trading for Beginners: What does the Test Say about your trading Style ?

When applied to trading, research shows that the different attributes provide unique tendencies for traits within that traits.

Here are a few examples :

Introverts find energy in the inner world of ideas, concepts and abstractions.

They want to understand why the markets are doing what they are doing.

They aim to develop systems that encompass the information gathered about the markets and use this information to make more informed decisions.

Extroverts on the other hand find energy in things and people.

They crave interaction with others and are usually action-oriented.

Learning about the markets is accomplished by talking with others.

iNtuitive traders seek look for patterns and relationships between the facts they have gathered.

They trust hunches, or “gut feelings” when researching the markets.

They are more likely to use charts as indicators and consequently spend a majority of their research looking at historical charts.

Sensing traders choose to rely on their five senses.

They are detail-oriented, crave facts, and they trust them.

They tend to prefer organized, linear and structure research.

The main takeaway is that each trait does come with Strengths and weaknesses.

If we consider Thinkers, one of their strengths is the ability to have clear goals and objectives while their weaknesses are lack of flexibility and a tendency to think too much in winning trades.

Feelers are in tune with the markets.

They can keep the big picture in mind but when it comes time to enters traders.

Their feelings take over which can lead to ignoring data and facts.

This is emotional trading.

Allow me to illustrate Emotional Trading through my very own experience in the next section.

Day Trading Stock Options: Store Your Emotions Away

Our perspective on all matters comes from the previously discussed Personality Type.

Therefore, we can find ourselves on the path below.

Image of Thought Process starting from Perspective, then thoughts, leading to Emotions, then Actions and finally desired results

This is a reactive path where the desired results come last in the chain even though they are the most important.

I would like to suggest that this chain needs to be reversed with the starting point being what we desire to get out of the market.

So that the results (which we should know beforehand , we want winning trades and this should not be a secret or surprise) are the ones dictating our needed actions to be successful.

Image of a Positive mindset starting with the desired results that lead to actions, then emotions, which generate thoughts and eventually a perspective

For me, this breakthrough occurred in June 2017, 16 months after the start of my trading career.

It started with the analysis of performance which lead me to breaking down specific area of my trading style that were holding me back.

A review of the first six months of that year lead to this chart.

In Options Trading for Beginners article: Graph showing first half 2017 number of trade per type, calls or puts for each stock
Summary of my Trades in 1H2017

This clearly revealed my tendencies during the first half of that year.

  • I was heavily trading calls, 80% of all my trades were calls.  The market was bullish but not that bullish
  • Most of the trades were really just across a handful of stocks. This by itself is not necessarily a major issue
  • One stock in particular (LNG) had the highest number of trades

The Blind Eye

It is even worse if I show the number of contracts on each one of these trades for LNG.

What had happened is that at the end of 2016, I spend a great deal of time researching this company.

They were ramping the build out of their natural gas exportation terminal in Sabine Pass, LA.

It was the first of such installation in the US.

The business model was very enticing.

Because of the fact they the majority of the exports had already been sold through multi-year contracts.

Proud of my fundamental research in hand, I got enamored with LNG buying calls ( the stock was trading in the mid 30’s) based solely on projections of future deliveries or the number of cargoes estimate that could be tracked from a website.

Yet, month after month, the LNG stock remained range bound.

I was ignoring this very fact in front of my eyes.

So after six months, the chart above opened my eyes on this strong bias.

I had allowed to cloud my mind about this stock.

It did not take long after that for me to remove LNG from my watch-list.

Because it was not serving my desired results.

The stock trades today around $60-$65.

I cannot tell you the last time I even considered taking any position on LNG.

Plan Your trade And Trade Your Plan

IF you are like many Beginners Trading Stock Option Online, Understanding yourself is one of the most important things in trading.

We ought to be able to embrace our strengths.

Stop fighting our weakness and focus on putting together systems that compensate for our weaknesses.

Such systems are successful Methodologies.

They are high probability setups.

We can repeat them without any attached emotion.

By the way, in case you are wondering about my personality traits : I am an introvert.

Which means I heavily rely on Intuition for decision-making while I think things through logical analysis.

How about yourself ?

CONCLUSION

We explored the impact of the mental side of trading.

Depending on how each trader s psychologically wired, the Path to Learn to Trade Options will be different.

Being aware of your personality traits is a big step in setting yourself up for success in this profession.

 

Suggested Resources

#1 : The #1 Trading Tool You Don’t Want To Miss In 2020
#2: Get Our Free Daily Market Recap Videos on YouTube
#3: What You Need To Get Your Options Trading Career Started

Sincerely,
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TBP | Becoming A Successful Stocks and Options Trader

Email:Telex@Successfultradings.com

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“Risk Comes From Not Knowing What You Are Doing” – Warren Buffet

 

 

 

14 thoughts on “Options Trading for Beginners: Psychology 101”

  1. Really interesting post on day trading stocks. According to the test I am definitely an INTJ.. but I feel lost and don’t know where to start with day trading on the stock market. Do you have an article or guide on how an absolute beginner can get into the realm of day trading? I would really appreciate it. Since I’m an INTJ I am going to work on your strategy for mentally improving my sgtance and outlook on trading. Thank you, have a good day.

    Reply
  2. Getting to know ourselves is one of the most useful tools to plan our trades. This post has helped me identify some aspects of my trading pattern that I hadn’t questioned up to this point. After carefully looking inside I have arrived to the conclusion I’m a INTP. I’ll try to design a strategy bearing this in mind. 

    I hesitated when it came to identifying myself as judging or perceiving? Could it be possible that in some instances we have a little bit of both?

    Reply
    • Hello Henry,

      I am glad to read that you were able to learn more about yourself and will be taking action on your trading style.

      I absolutely agree with you regarding the “identification ” part. Nobody is always 100% of their identified trait. These are traits we tend to lean towards most of the time hence i can certainly understand your vacillating between Judging and Perceiving. 

      Reply
  3. When were going to start training should we bear in mind what this test identifies in us? For example I’m a ESFP. But I see most courses out there try to impose the same “winning strategies” to every attendant to the course. Won’t that affect those that have different tendencies than the person that created the course?

    Reply
    • Hello  Ann,

      The goal of the training is for each trader to come up with their unique winning methodology based on their unique personality. Some people will be comfortable with just some specific setups: the market is full of opportunities that each trader can exploit at their own level.  We have an upcoming article on this topic. Hope this helps you.

      Reply
  4. Wow! I never knew about this at all before now but then, this is really massive to know of when it comes to paying attention to details. I am a trader but I do not know how to take the day trading. Also, drawing from this and being an introvert myself, I always rely on my thinking of what could be right and wrong. Well! It feels good reading about the clarifications here and how I can make good use of my weakness to be a strength. Please do you have a specific guide or post that can help with my trading?

    Reply
    • Hello Rodarrick,

      Hope all is well with you. Yeah the Psychology side of trading is often forgotten. And traders wonder why they keep repeating the same mistakes.

      Regarding your trading, what securities do you trade, options , stocks ?

      We have these series of options trading tutorials that will lead you into mastering successful strategies:

       https://successfultradings.com/the-best-options-strategies/

      Let us know your thoughts on them and we can go from there.

      Thanks

      Reply
  5. Good one here. Not every trader would agree with this but then, the few of us that have taken it upon ourselves to learn more and more everytime in order to improve on our trading. I’m a typical introvert just like you so, most of my trading are products of emotions and gut feelings. Though they are admixture of good and bad but then, if I can, I would love to learn more about this.

    Reply
    • Thank you for your comment Shelley.

      Feel free to subscribe to the feed to that you do not miss out on the future articles.

      Have a very productive Day.

      Reply
  6. This is rather interesting and I value every bit of the information you have shared here with us concerning what really shapes our trading and the patterning we follow even without being conscious of our actions. This is really great. Going by all I have read here, I am an INTP and though I never truly take time to figure that out before. This is good and I will work around this henceforth.

    Reply
    • Greetings Ramos,

      How are you doing ? Happy to see that you learned from this post.

      Please Subscribe to our feed so that you are first in-line for our future articles.

      Thank You.

      Reply
  7. Interesting to read on here and surely, a thumbs up to you for sharing. Getting to know what influences our trading pattern and the kind of trader that we are also play a big role in our relationship with others. However, I would love to know if there are other things that needs to be put into consideration after identifying ourselves and also, our emotional stance. I would also like to inquire if there is any book or recommendations for people like us to read more.

    Reply

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