The 3 Biggest Options Trading Mistakes To Avoid (And Why)

The 3 Biggest Options Trading Mistakes To Avoid

Many traders lose money because of trading mistakes that are easily avoidable.

The three biggest options trading mistakes to avoid include trading too large, trading a bad trading strategy and lacking discipline.

This post provides the biggest trading mistakes that you should avoid.

By learning what NOT to do, you can improve your performance significantly.

Although I'm an experienced trader, I also make mistakes and try to learn from them. When it comes to options trading, remember that you can do everything right and still not win every single trade.

Your goal should be to place trades that will provide you with a high risk-adjusted return (while also minimizing losses on your losing trades).

By trading a strategy (such as selling option premium), you can learn how to be consistently profitable. Being a successful trader is less about winning every trade, and more about having a strategy that you can consistently replicate.

They say that "95% of all traders fail", but you don't need to be one of them.

In this blog post, I will share with you the biggest options trading mistakes I have observed from unsuccessful traders so that you will learn to not commit the same mistakes. In this post, you'll learn why traders usually lose money and what to do about it.

Trading Mistakes (Key Points)

  • You need to learn valuable skills in order to make money trading options.
  • The biggest trading mistakes that I see traders make in the stock market is that they have a bad trading strategy. Day trading and trading forex will make you poor.
  • Just because you make money in a trade doesn't mean that it was a "good" trade! It's possible that it was just good luck and that the strategy is not replicable.
  • If you want to become successful in options trading, you need to sell option premium, be disciplined, not trade too large and BUY options during periods of low volatility.
  • Successful traders are able to quickly assess probabilities of expected outcomes and then invest a large portion of their portfolio in only the BEST opportunities

Why Traders Lose Money

You need to have skills in order to make money trading options.

One of the biggest trading mistakes that I see traders make is that they think they have to "trade often" in order to make money.

The opposite is true... patience and discipline are extremely important when trading.

While trading is actually very simple (in my opinion), people tend to over-complicate things.

I see traders posting on Facebook groups about making money with low-probability trades. 

These people always seem to be successful traders online, yet in real-life...not so much.

For example:

A trader may make money by buying a call option on a penny stock. They take a screenshot and post it to a Facebook group, expecting praise from other members.

In my opinion this is a very big trading mistake because whether that person makes money or loses money on that trade, buying calls on a speculative penny stock will, more often than not, lead to losses.

This trader will lose money in the future because the probability is heavily skewed against him (except in certain situations).

He may win 3 out of 10 times, yet the 70% of the time that he loses money will quickly bankrupt him.

By trading this strategy, he is building bad habits.

The few trades that were profitable were not skill, rather it was luck.

He can study chart patterns and review market conditions and believe that a "secret strategy" exists that will increase his trading win rate.

He will continue to use his poor trading strategy and try to increase his win rate, yet he will continue to lose money and is doomed to fail.

He thinks he has a good trading strategy that will eventually yield profits, however the expected probability from his trading will likely never improve. 

Selling Option Premium Reduces Trading Mistakes

Traders are very bad at assessing expected probabilities and predicting how likely something will happen.

For example:

Many people are spending $200,000 on a college degree yet after graduating they work in a job job that doesn't require a college degree (college is a waste of time and a scam).


Students realize that they didn't even need to go to college and spend ~$200,000 and accrue massive debt.

They'd have been better off spending that four years learning valuable skills.

The point here is that, people misattribute how beneficial college could be to their lives.

And they do the same thing with trading. They believe that if they study and invest time in learning "technical analysis" and "charts" then they will make money.

This is false.

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"While trading is actually very simple (in my opinion), people tend to over-complicate things." - David Jaffee, BestStockStrategy.com

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Why Do Most Traders Fail? (Trading Mistakes)

What separates successful traders from unsuccessful traders?

Successful traders make decisions based upon assessing future likelihoods of an outcome, and then they take action.

Many traders enter trades that they're not confident in, and then they lose money.

Whether you want to be successful in life, relationships, or as a trader, a major component is making good decisions and being accurate in assessing probabilities and expected outcomes.

If you have a bad trading strategy, a few profitable trades does NOT mean that you're skilled.

Instead, it's vital to assess the expected outcome of your strategy and ensure that, over the long-term, it'll be positive.

Take the BEST options trading education course and become a profitable trader

Option Trading Mistakes & Tips

  • I frequently see traders misjudge probability levels and attribute good outcomes to skill and bad outcomes to bad luck
  • Some traders think they have skills when, in reality, they made money based upon a random outcome of the trade
  • Whether you want to be successful in life or as a trader, a major component is being accurate in assessing future outcomes
  • Sign up for Trade Alerts – Receive real-time trade alerts so that you maximize your profits and minimize your mistakes; we have a Trial Offer of $19 for 7 days.

"DO NOT misattribute positive outcomes to skill when it could be luck." - David Jaffee BestStockStrategy.com

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How to Avoid Trading Mistakes

One thing that you can do to improve your overall life is always ask yourself:

"Is this result based on luck or is it an outcome based upon skill that can be replicated?"

Then makes your decision based upon the expected outcome.

If an outcome has a very low probability of being successful but the payoff is very high, then perhaps it's a worthwhile endeavor if the downside is limited.

When we sell option premium, we have a very high probability of profit, yet a small payoff.

In essence, we hit singles and we do not try to hit home runs.

When trading, it's important to SELL option premium because the probability of profit is incredibly high.

At the same time, it's also important to hedge your tail risk by buying options.

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What Percentage of Option Traders Make Money?

If done correctly (with patience and discipline), I believe that 90%+ of options sellers can make money.

Reasons Why Forex Traders and Day Traders Lose Money

The day trading success rate is close to 0%. Almost ALL day traders lose money.

I've heard that "95% of traders lose money", in actuality, that number is close to 100%.

The day trading success rate is close to 0%.

Can retail traders make money? It's like playing roulette at the casino.

Check out these 2 studies:

Day Trading Studies

According to Emmett Moore from TradingSchools.org, in his Day Trading Scam article:

The Sao Paulo School of Economics commissioned a study that tracked a total of 19,646 day traders from 2013 through 2015. The data was broken down into bite-sized chunks to better understand the data.

The first group of day traders totaled 1,111 individuals that day traded only a single day. Of this group, 29.8% achieved a profit.

The second group of day traders totaled 9,978 individuals that day traded between 2 to 50 days. Of this group, 15.5% achieved a profit.

The third group of day traders totaled 3,100 individuals that day traded between 51 to 100 days. Of this group, 8.9% achieved a profit.

The fourth group of day traders totaled 2,738 individuals that day traded between 101 to 200 days. Of this group, 6.8% achieved a profit.

The fifth group of day traders totaled 1,168 individuals that day traded between 201 to 300 days. Of this group, 5.4% achieved a profit.

The sixth group of day traders totaled 1,151 individuals that day traded greater than 300 days. Of this group, 3.0% achieved a profit.

What does this data suggest? Ironically, the data suggests that the odds of achieving day trading success is nearly identical to playing roulette at a casino. The more you play, the greater the likelihood that you will lose everything.

The social scientists were particularly surprised to discover that ‘learning’ played nearly no part in the results. For instance, it was assumed that if a person had traded 6-months and 200+ trades, that they would learn to trade better or improve upon their trading strategies to achieve greater success because they were “learning from experience.”

And this is just what the trading educators want us to believe…that we need to “learn” and over time, this “learning” will improve our results. But the data absolutely destroyed these assumptions. In fact, the more a person “learned” to trade, the worse their performance became. It seems like “practice makes perfect” does not work in day trading Futures markets.

The Brazilian day traders that actually earned an income

We all know that some folks, through luck or skill, are going to achieve success. Let’s take a look at those figures now…

The first group of successful day traders totaled 17 individuals that earned an average of $16 per day.

The second group of successful day traders totaled 8 individuals that earned an average of $54 per day.

The third group of successful day traders totaled 1 individual that earned an average of $310 per day.

But here is the sad part…of these successful Futures day traders, the standard deviation of their daily profit ranged from $632 to $3,308. What does that mean? In other words, in order to consistently earn $80 per day, you would also have to experience massive daily fluctuations of between $632 and $3,308.

And based upon the data, only one person was able to earn more than a minimum wage job.

It gets worse

For those 1,151 day traders that persisted 300 days, 97% lost all of their money once commission was factored in.

Even the highest performing trader that earned an average of $310 per day ended up barely profitable once the commissions were factored in. How sad are these numbers?

In conclusion, the study stated that “It is virtually impossible for an individual to day trade for a living, contrary to what the brokerage specialists and course providers often claim.”

So what should you do?

If you are stuck in that sad wheel of constantly funding a day trading account, and constantly looking for a new ‘Guru,’ then perhaps its time to put the mouse away. At least for a while.

The sad and sorry truth is that day trading is mostly a scam. Yes, some can pull it off successfully. Just like how some people will be cured of cancer by drinking apple cider vinegar. But the overall scientific data put the odds at roughly equivalent of playing roulette. The more you play, the greater the likelihood that you will lose everything.

Trading Mistakes: Lack of Patience

Options traders, especially new traders, frequently lack patience.

They trade too often!

I've created this UPDATED VIDEO to explain some of the biggest trading mistakes that I've encountered.

Conclusion: Options Trading Mistakes

We all make mistakes, we just need to learn from them.

The main takeaway from this options trading mistakes post is that:

You have to make sure that you are not misjudging probabilities and misattributing positive outcomes to skills when it could be a random outcome / luck.

That is the biggest mistake that I have observed that is inhibiting people from being successful traders.

If you want to continue receiving valuable information, trading examples, and tips from me, please enter in your email below and receive $400 worth of free training.

You may also leave a comment below and I would be happy to answer it.

Frequently Asked Questions (FAQs)

What are some option trading rules?

1) Sell option premium on large capitalization stocks with strong brands.

2) Do not trade too often

3) Buy options as a hedge, and for protection, during market extremes. This will reduce portfolio volatility.

How to minimize losses when option trading?

The best way to minimize losses when trading options is to not trade too large. You need to ensure that you leave enough buying power so that you aren't forced to close out positions for a loss.

Buy options (puts) during periods of low volatility and buy calls during periods of high volatility.

What's the best options trading plan?

The best options trading plan is to sell options on stocks that you want to own, not trade too large and to buy options during periods of market extremes.

Is it okay to buy options?

Yes, it's okay to buy options. My thinking on this topic has evolved. Previously I was against buying options but I now believe that buying options is extremely important to reduce portfolio volatility.

About the Author David Jaffee

I (David Jaffee) help people become consistently profitable traders while minimizing risk. Learn more about our live trade alerts and courses. I graduated from an Ivy League University and worked at some of Wall Street's most successful investment banks. Subscribe to my YouTube channel for valuable videos - BestStockStrategy YouTube Channel​. My personal website is DavidJaffee.com.

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4 comments
Trading Sniper says October 17, 2020

Touche. Sound arguments. Keep up the amazing spirit.

Reply
Georgene Hammed says February 6, 2020

This blog about Trading Mistakes: Biggest Reason Why Traders
Lose Money. has helped me enormously, is a very good topic.

Reply
Jacob says September 23, 2019

Your information is very useful, and you seem like a genuine trader. But you Youtube Thumbnails, Blog thumbnails and your Podcast art is very ugly (no offense). I can make you better art

Reply
    David Jaffee says September 23, 2019

    Thank you

    Reply
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