Learning Options Trading

Learning Options Trading: How to Increase Your Options Understanding Ten-fold

By The Mt. Vernon Research Team
Friday, June 24, 2005: Issue #219

In my last report, I talked about learning to trust your gut when it comes to learning options trading and trading options…

And I mentioned some specific cases in which you should always trust your gut – there were five of them, to be exact.

Today I want to hedge that “trust your gut” position by saying that you can’t trust your own feelings in every situation. Those feelings, while worth paying attention to, are not always good guides when it comes to trading.

For example…

I’ve suggested many a trade that brought letters asking if I’d missed tightening a screw that morning. My system exploits some quite obscure phenomena, complex signals and tons of data. So I’m bound to come up with recommendations that don’t go down easily with everyone. Yet usually, they worked out just fine, just as I expected they would.
And of course, I’ve suggested trades that I and my readers thought were brilliant, only to have those be the ones that failed.

So how can you tell when your gut’s leading you astray? There’s a way to get past this conundrum of when to trust and when to make your own decision, even though you don’t yet know enough to be sure you’re right… Let me explain…

The Importance of “Keeping Score”

First, you should always keep score. When you decide to skip a trade, do yourself a huge favor: Keep track of it anyway.

That’s right: I’m suggesting that you follow the trades you skipped, as if you were in.

Learn whether it worked out. If it did, try to understand why. This will do wonders for your confidence, and you need confidence (but not overconfidence) to be a good trader. It will enhance your understanding ten-fold.

One caveat here: I’m not talking about paper trading a bunch of trades at the beginning of signing on to a service to see if you like it, which I consider fairly worthless for most people.

I am talking about skipping an occasional trade that makes you extra-suspicious, and finding out what happened. This is how you find out where your boundaries are and whether they are realistic.

Gaining Mastery, Learning to Trust Yourself

At the beginning of your trading career, alas, your feelings are probably going to be a terrible guide to what to do. And your advisor’s system may be one that meshes well with your personal approach – or it may not.

You will only find out by trying it wholeheartedly and faithfully, even though a few of those tests may be on paper.

By learning what works, your own intuitions and feelings will become more reliable as they are based in real experience.

Then you’ll be able to trust yourself, and that’s the best of all.

Good trading,

Mt. Vernon Research