Providing insights to individual investors on practical
options techniques in options trading can be challenging, but
only because people don't want to spend the time to learn about
how they can grow their money in a completely different and
It's not that everyone can't learn about options. Quite the
contrary. We are all smart.
Inherently, the financial services industry wants you to buy
and hold. So far they have succeeded. But, as most of us already
know, that mentality is slowly changing. Given the paltry market
returns over the past 12 years, individual investors are becoming
acutely aware of some of the techniques that professional
investors use on a daily basis. Why? Technology.
Technology has provided an efficient marketplace and now the
products are following suit, which brings me back to my last live
chat presentation on the 40 most efficient
in the options market and why they should be your focus.
Your focus as an investor or trader should be on the most
efficient products available because these products (SPY, QQQ,
DIA, IWM etc.) offer you the best chance for being a successful
If you are interested in learning more about how I approach
the market in great length you can access my newly published
White Paper and special report. You can receive both reports,
plus several other special reports, not to mention two free
months of the Options Advantage service for $39. If you are not
satisfied you can cancel at anytime.
Click here to access the reports.
What to do in a losing streak
OK, now on to the options question of the week.
"Regarding trading systems, I have heard that if you have
experienced a string of losses with your system, you should
push on and continue to trade according to it. When or how do
you determine if you should stick with the system, or if it is
time to pack it in and research another type of system? I enjoy
reading and find great value in your articles and look forward
to your answer on this issue. " - Tom K.
First of all, thank you for the kind words.
Every trading system goes through losing periods. If you have
a proven system but are going through one of those rough periods,
there are several steps you should take. Your first action is to
stop the bleeding. That means reducing the size of your trading
units to a minimum. Then begin to analyze why you have suddenly
A losing streak can come along for many reasons. For instance,
a common occurrence happens during a prolonged winning period.
Traders get overconfident and increase their risk. Then a couple
of losing trades wipes out most or all of the profits and traders
have a hard time getting back to their basic system.
Another common mistake is increasing the size of your trades
after a couple of losers to try to get the money back, usually
just digging a bigger hole.
Sometimes the market changes and the trader is slow to
recognize it. When volatility increases, it means adjusting risk
and widening stops. Traders are often slow to react to this
change. If the market turns from a directional market to a choppy
one, momentum traders often get hurt.
And of course, we can't rule out outside factors that affect
trading and can cause a trader to execute his system poorly. It
could be problems with family or illness or other
I suggest keeping good data on your trading. Keep records of
every trade like I do in the Options Advantage service. Make
notes of market factors. Analyze your win/loss ratio.
Just think: A trader who has 55% winning trades and whose
winners are 50% bigger than losers will make a lot of money over
time. Those statistics leave a lot of room for losing streaks. So
if you have a proven system and it goes bad for awhile, look hard
at the factors that might be causing the tough period and make
adjustments. You should soon be back to your winning ways.
Remember, this is a long-term endeavor. Expect drawdowns in
every system/investment. Remain patient and disciplined in your
approach and you will be successful over the long term.