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.
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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.
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.
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.
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.
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 ?
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.
TBP | Becoming A Successful Stocks and Options Trader