The emotions of options trading
Australia has just recently become the home of a lot of technological advances. It is seen in many IT and technology companies that have decided to establish themselves here. It’s not surprising that Australia would also be an options trading hub.
The reason for this can be traced back to some economic conditions in Australia: most notably high unemployment and trade deficits. These economic conditions placed restrictions on investments made by Australians, which was what prompted many of them to look towards other options such as investing through options trading platforms online. And so, we ended up with a large market (and growing) for such wares. You find more about this on this site.
Of course, there are still some risks involved in such activities; it doesn’t matter what you’re doing, it’s impossible to be risk-free. However, the risks involved in options trading are straightforward to understand and were outlined by our country’s own Reserve Bank of Australia (RBA).
The RBA quickly points out that while there is nothing wrong with options trading per se, you should never use more than you can afford to lose. If you do want to put your money into options trading, make sure not to invest more than 5% of your total wealth; any less than this will mean that emotions would cloud your decision-making process.
There’s no denying the rush that many options traders feel when they get an offer through their platform. The number of different assets available for trading is also relatively high, with individual traders capable of spreading out their risk by diversifying their portfolios. This sense of power can be exhilarating, but it can also lead to overconfidence in your abilities to assess the market and make decisions regarding your trades.
Greed is another emotion that options traders are all too familiar with. It manifests itself in thoughts like “I’m sure I’ll make more money if I try this other tactic” or “This stock will go up further”. When you start having thoughts like these, it’s best to remind yourself that the money involved is tangible.
Not all options trading emotions are positive, of course. Many traders say that fear is the most dominant emotion they experience. It may manifest itself as not being able to bear the thought of stocks moving against your position or even panicking at any time during your trade. Sometimes, you’ll find yourself stuck with a losing trade because of this – but if you manage to overcome these feelings, it can be just as rewarding as any other successful trade.
Even more dangerous than fear is anger. When you think the odds are against you after making an informed decision, getting angry won’t help, but it still happens anyway. And when you decide to give up on trades before they’ve finished, you’d better be prepared to face the consequences.
The last emotion that’s worth exploring is disgust. Quite often, new options traders will find themselves regretting their decisions after a trade affects them in some way. If it happens too much, you’ll likely stop making trades altogether – which does no one any good. You have to suffer a bit of pain if you want to get ahead in this business – but if your pockets aren’t deep enough for that, then better quit while you’re ahead.
You mustn’t lose hope if you have a bad patch in options trading. Sometimes well-informed decisions still go wrong, which is why traders must take a step back and re-assess the situation before making any rash moves. This is where motivation comes in – knowing what you’ve done wrong can help you prepare for future trades and keep your motivation levels high.
There’s no point in following the herd when it comes to options trading – but you don’t want to stray too far from them either. It can be hard to stand by while everyone else makes money, but it’s important not to make rash decisions based on feelings of disbelief or envy. If you feel this way, remember that there is enough money for everyone; all it takes is some patience.