Trading Psychology: Master The Psychology Of Trading | – Options Trading with David Jaffee
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Trading Psychology

Trading Psychology: The Emotional Toll of Being a Trader

In this post you'll learn about investor psychology and the psychology of trading - this post has been updated, at the end, to include trading adjustments based upon 2020 and 2022.

As much as the fake gurus want you to believe that you're going to make money every day, remember that there is no easy money when trading options and you'll have bad times when investor psychology / the psychology of trading will become challenging.

There are ups and downs. The emotional toll of being a trader can affect you if you're not prepared.

How will you react if you lose 10% of your account size in a week? This isn't common, but it's happened before.

When it happens it can lead to massive stress, anxiety and depression.

Will you allow the psychology of trading to leave you depressed and anxious?

Remember that the pain of losses are much stronger than the happiness from gains.

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In late 2018, I experienced a ~10% decrease in my account over 2 months.

I've had this happen before.

When it does happen, I've learned how to get through it without letting it affect me.

The reason I was able to maintain confidence is because, based on my prior experience, I knew that I'd recover from any losses.

No one ever wants to lose money trading. The good news is, if you know how to maintain positive trading psychology and investor psychology, then you have an excellent chance of recovering from your losses.

Market Volatility Affects Your Trading Psychology

When it comes to trading and consistently making money, you have to bend and not break during a market correction.

Before February 2018, I made money every month for almost ~2 straight years by selling premium.

I got used to always making money. Perhaps, I even took it for granted.

Yet in 2018, I incurred losses in a few months.

The last quarter of 2018 was treacherous and I lost 10% of my account.

When I lose money, maintaining positive trading psychology is difficult.

Yet, during these times, the psychology of trading becomes even more important.

While incurring losses, I began to get a little depressed, I was slower in getting things done and I had less energy.

While going through a difficult time, you don't know that things are going to improve.

Instead, you're looking at your account and see that the hard-earned money that you've earned is being lost.

That's a horrible feeling, but you should always expect market fluctuations when trading. 

I have ~20 years of trading experience yet I do everything possible to minimize losses because the stress is very unhealthy.

I would rather make less during the good times to ensure that I lose A LOT less during the bad times.

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Having Healthy Investing Psychology is Essential to Success

You will not win all the time and if you want to trade and earn consistent profits then positive trading psychology is very important.

Having discipline and patience is also very important.

When experiencing losses, I had complete 100% certainty that I was going to make all the money back. 

In fact, in late December and early January 2019, I made back almost everything that I had lost.

You should always consider the investor psychology when evaluating strategies. 

Despite winning up to 98% of our trades, there are times when you can lose 10% of your account relatively quickly.

If suffering this loss will incapacitate you, then trading might not be for you.

Trading the stock market can be volatile.

Selling options premium is definitely the best stock market trading strategy.  

But can you handle the psychological stress that goes along with losing money?

Investment Psychology: Is Trading Right for You?

You have to know yourself well enough to make the decisions that are best for you.

If you believe that sustaining a significant loss is going to put you out of commission for two to three weeks then maybe you shouldn't trade at all.

If experiencing a trading loss is going to paralyze you, if you're going to get incredibly depressed, if you're going to lose confidence, then…

I don't recommend that you trade.

Know the risks ahead of time, prepare yourself ahead of time with positive investor psychology.

That way, you'll be prepared.

Also, I highly recommend that you visualize yourself losing 10% of your account and experiencing the emotion that comes with it. Mental visualization is very powerful and can help prepare you so that you don't become a slave to your emotions.

Remember that there is no easy money.

And despite knowing the best way to trade, which is trading options, it's important to realize that you won't win all of your trades.

Selling option premium is the best way to consistently make money in the stock market. If you can't stand to win up to ~98% of your trades, and an occasional losing trade ends up overwhelming you, then trading is not for you.

If you're still interested in trading options, I put together this blog post which is a detailed options trading guide.

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Trading Options Provides Consistent Income But There's No Free Lunch 

While you'll likely always lose money by day trading, selling penny stocks and trading forex, be aware that even options traders who sell premium will experience volatility in their returns.

You will have good months and bad months. 

Learn how to trade options with my best options trading strategies and reduce the chances of loss.

An excellent way to start is by signing up for our trade alerts. It's only $19 for seven days!

One of the reasons why I criticize these fake gurus is because they tell you that profit comes easily.

They promise that you're going to make consistent income, that every single trade that you make is going to be profitable.  

Yet when you day trade and use technical you're almost guaranteed to lose money.

Selling option premium is consistently profitable, but you're not going to win every trade.

There is volatility, and if you don't prepare for that, then you will not learn how to make money in the stock market.

Options trading requires discipline, and there is no easy money for traders who decide to trade options.

Don't forget that, even if you're profitable on 95% percent of your trades, there are going to be situations where you lose money.

There will be volatility when trading. 

If you are not able to overcome that, then I don't believe that you have what it takes to be a successful and profitable trader.

Whether you're trading verticals or you’re trading naked options, you may experience temporary losses.

I prefer trading naked options because it provides more freedom to roll / manage the position while reducing the strike price.

"Investor psychology is extremely important. If you are unable to handle swings in volatility, then perhaps trading is not for you." - David Jaffee,

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2020 and 2022 Option Trading Strategy Adjustments

It's important to reduce portfolio volatility while trading.

During periods of low volatility it's important to buy options to reduce volatility during times when the expectation volatility is less than the actual volatility.

I also believe it's worthwhile to buy stocks that are oversold.

For example, in 2022, Amazon was trading around $100, this represented a ~40% drop from its recent high.

Buying AMZN shares provided significant upside potential.

Traders can even buy calls during periods when the market is believed to be oversold.

While I understand the probability of profit when buying calls is less than 50%, the reality is that sometimes the stock market becomes oversold, or overbought, and during these periods, it's important to buy options to reduce volatility while also being able to participate in the upside moves.

Conclusion: Positive Psychology of Trading / Trading Psychology is Vital to Success

Stock market trading is not easy. Remember that some options strategies are better than others.

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The best way to be successful with stock investing is by selling stock option premium.

I can teach you about call options, put options, credit spreads & options strategies. I can teach you to make money in the stock market by selling option premium.

I have plenty of experience in option trading, and that's what really matters.

But it's up to you to get your emotions and expectations under control so that you profit consistently.

While there is a major emotional toll that goes along with trading losses, you're going to get better with experience.

You only need to realize that success is not easy: there are going to be ups and downs.

Play the long game and don't get discouraged by temporary setbacks.

And remember: 

Make less during the good times so that you lose a lot less during the bad times.

Thanks for reading. This was yet another long article. If you made it this far…you are a champ! And don’t forget to leave a comment below. I especially want to hear dissenting opinions. I look forward to reading your comments!

Frequently Asked Questions (FAQs)

What's the best way to deal with trading losses?

The best way is to reduce portfolio volatility by not trading too large and by buying options during periods of low volatility and when you feel that the market may be oversold.

How to recover from large trading losses?

Learn from your mistake so that you don't repeat it and slowly build back up your account. Losses hurt significantly more than the gains feel good. Do not gamble, it's not worth it.

How to deal with a losing streak?

After a losing streak, start small; don't jump right back to the same position size you were trading before. On the first day back, trade a small position size. A winning day with a small position size will help build confidence, and you can increase your position size the next day.

But, most importantly, try to avoid taking big losses. This requires you to BUY options during periods of complacency and when the market is oversold.

What are some of the biggest trading losses?

OptionSellers blew up their $150MM hedge fund. Long-Term Capital Management received a $3.6 billion bailout.

There are numerous traders , or institutions, who have lost money - they usually lose money because they get complacent, trade too large and do not have proper hedges in place.

About the Author David Jaffee

I (David Jaffee) help people become consistently profitable traders while minimizing risk. 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​. Finally, if you're looking to Land a Finance Job, then I've put together the best step-by-step course at My personal website is

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Leave a Comment:

Rick Brown says June 14, 2019

In order to be successful you must set aside your emotion so that it will not affect your decisions specially in trading because one mistake and you may lose a lot of money. #Forex #FXLeaders #Trading

    David Jaffee says June 14, 2019

    Thanks for the comment

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