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BookingAlpha Option Trading Advisory

Friday, July 31, 2015

All traders go to heaven

Louis lost more than 30 grand last year trading options. That's a lot of dead presidents right there. Sadly, Louis reads to much MarketWatch and Bloomberg, and stays on Twitter for too long. Sadly, Louis has also read this site and because of that he is considering to continue trading. God save his soul.

"I am a newbie trader, transitioning from a full time job to trading options. I lost over $30K trading last year and desperately need to turn around my anxious and stressful life. I cannot go on waking up in the middle of the night with my heart wanting to explode. My health is deteriorating because of concerns about my future. Most traders deal with a lot of trades and I cannot handle that pace anymore. Hopefully I can learn from you and stop being depressed. I wonder if you have any good advice for me. Seems you know what you are doing. Thank you. Be blessed by our Heavenly Father."

See what happens when you read too much financial news? Suddenly you start inflicting damage to your mental health, which ends up affecting the well being of the entire organism. It won't be long until sexual dysfunctions show up, affecting the relationship with your significant other (or others if you are into that polyamory thing). Finally the worst of all, you start idolizing other human beings.

The good news Louis is, your situation can be fixed (including the sexual part), with discipline, study and proper guidance. We've all been there. We've all lost money learning the ropes. We've all fallen victim to some degree of frustration and depression due to the lunacy that trading is.

Here's what I think after a few years doing this:

1- Stop trading today and wait until you feel psychologically better and you are technically better prepared. Revenge trading can be very costly and depression added to it can be devastating to your morale. The unscrupulous snake oil salesman would tell you to buy his system or subscribe to his newsletter today as the sure way to solve your life's problems. Right now that's not what you need. You need a little break first to lick your wounds and find joy outside of trading. Go to a park, read about Kim Kardashian, hunt down some lions, have a threesome. There's more to life than just trading and everybody needs to find a balance outside of the markets.

2- Take plenty of time to study a strategy or trading system. Paper trade, paper trade, paper trade....I would say for at least 6 months.

3- Be patient. The markets won't go away. Only trade real money once you are confident, and when you do, start off with a small amount. There's no rush. An old Cuban proverb goes something like this: "Dress me slowly 'cause I'm in a hurry".

4- Learn from someone who has been trading successfully for a while. There is way too much garbage out there. Thousands of people tweeting about the markets or writing beautiful articles without ever showing results. So, if you are going to subscribe to any trading newsletter, evaluate it carefully. Ask the man behind it about a trading track record. Ask whether the trading track record is independently verified by a third party. Inspect it carefully. Inquire about his trading style. Ask him how he would protect his capital in hypothetical extreme situations. See how long he takes to reply. Study his language. Don't be fooled by track records that make the trader look better than he really is.

5- Trading for a living is not easy. You will need to be well capitalized (Here's my take on how much money you need). For example a $100,000 account which you grow by 20% per year (excellent performance) would give you $20,000 to live off (but remember the Tax man also needs to make his poor living). Annual returns above 20% can be achieved but it is not realistic to count on that every single year (Read my take on realistic returns). So, even $100000 to trade for a living doesn't seem to be enough, unless you live in Namibia, or Haiti. So, go back to the cubicle and wait to be well capitalized. Use that time to study the markets in the nights and paper trade your ideas. Don't be desperate to quit your job until you have a good account size AND you have proven that you can be consistently successful (that is consecutive months making money and a few months where you successfully deal with losing trades without blowing your account). That confidence needs to be built before you even consider quitting your job to trade for a living.

6- Find your holy grail. Over time I have realized the best system is not the one with the greatest returns and smallest draw-downs. The best trading system is the one that best suits your personal situation, your risk tolerance, your time availability. It looks like a super active style doesn't fit you well. It looks like avoiding earning trades could be a good idea for you, and it also seems that playing 100 positions in 100 different underlyings at the same time doesn't go well with you either. I would explore more passive approaches. I use no individual stocks, but only indexes while others like to trade more instruments. I make very few trades in a year (around 30). Some other people think they need to be constantly trading. I use defined risk trades, other traders feel better using undefined risk positions such as Strangles to collect more credit and expand their break even points a little bit more. I cannot tell you what will fit you best. I can only suggest ideas for you to consider. Somebody once said that the "holy grail" is not a perfect system but an inner struggle. So, only your own practice and testing of your feelings will determine what you are truly comfortable with. You may end up learning some excellent system only to modify it a bit, tweak a little thing here and there thus adding your personal flavor to it, and that's your holy grail.

Your story is similar to that of thousands of traders. Thanks for allowing me to share it on the blog so that we can all reflect about it.

Cheer up pal!
Having first world problems is truly a wonderful thing.


If you are interested in a responsible and sustainable way of trading options for consistent profits, consider acquiring LTOptions, my options trading system revealed to the last detail.

Related Articles:
The Markets and My Empty Fridge (overcoming trading addiction)
The daily fluctuations of your easily influenced mood
How to evaluate and choose a trading newsletter
It never Rains but it Pours
An independent website for finding out about trading services' returns
How to measure portfolio's performance
How much capital do you need to trade for a living
Trading with realistic expectations

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  1. Great and funny article. I have made all the mistakes you can possibly make when I was starting out. I got lucky my first 6 months trading spreads and thought I was a genius. I quit my day job and started trading full-time only to give back all my profits from the previous 6 months and much more. I followed trading gurus who were actually gamblers with very clue what to do when the trade goes against him/her.

    I agreed with all of the advice you gave Louis. He got demolished by the market and is in desperate need to make his money back. He will follow anyone who promises him they will double his money or more in a short time. These snake oil salesmen will prey on his desire to be rich. They can be quite convincing and can show him a few of their trades that demonstrates their trading prowess. Be careful with any person who does not have a track record or cannot furnish you with their brokerage statements.

    My advice would be to evaluate any trading system carefully and to paper trade it until you feel very comfortable. Then start small until you gain enough confidence to increase your account size.

    As long as you know and understand the risk of what you are trading, do not put all your eggs in one basket, practice good risk management, take small losses before they become too big, then you can make money over the long-run. You can blow your account trading stocks, bonds, options, currencies, futures, etc. It is never the strategy. It is always the risk management. How you manage your risk and positions is the true key to success.

    You have to follow the path that best suites your own risk aversion and trading style. Risk is always the first consideration in any strategy and should never be forgotten or overlooked. It all comes down to risk management. That is the unspoken trait that usually differentiates traders. If you do not have good risk management, you will lose money on even the most conservative strategy.

    1. Jonathan,
      With all the little pieces of wisdom you have left on this site over the years, I could create a best selling book. Thanks for your comment once again.