It doesn’t matter how long you’ve been trading, you can slip into bad habits. One of the worst habits for any trader, experienced or not, is to trade without discipline.
There are lots of various option trading strategies, philosophies and methodologies. All traders need to trade with a plan. More importantly, traders need to follow the plan they set forth. But, it’s easy to forget the plan in the heat of the moment. Emotions can get in the way, clouding judgment and leading to bad decision making. It’s the age-old battle of the left brain vs. the right brain.
The left brain is logical and mathematical. It’s the side of the brain that calculates the numbers in the analysis that leads up to making a trade. It can help make rational decisions. The left brain measure potential profits and losses and deduces ways to curb losers and squeeze the most out of winners. The left brain is, indeed, a trader’s friend.
The enemy of the left brain is the right brain. The right brain is creative, qualitative and, to be sure, emotional. The right brain tries to wreak havoc on your trading every chance it gets. “Hmmm, maybe we can make a little more on this trade. We could hold it just a little longer,” it may tell you. Or, “Oh no! I’ve got to close this loser right now. It’s going lower, I know it!” this brain may tell you other times. Impulsive reactions to fear and greed are all a function of the mischievous right brain making its way into your trading. It tries to topple the even-handed left-brain trading machine.
But watch out! When the right brain starts wreaking havoc, take it to a movie, play it some music, out to dinner perhaps. When it comes to logical trading decisions, like picking entrance and exit points for a example, leave it to the pros. Let that good old left side of the gray stuff do it’s own thing. Play it tight. Logically map out the smartest course, and follow it with discipline. Stick to the plan.