Have you ever thought about why people fail in their personal and business achievements?
Why do so many traders lose money?
How you can benefit from those people (in a positive way)? Remember geniuses learn from the mistakes of others, whereas fools learn from their own mistakes.
I'm going to share one of the biggest problems that people experience and how to train yourself to overcome failure so that you can be more successful, make more money, and accomplish your goals.
Let's get started!
Why People Fail in Life
One of the biggest problems that people experience is that they are oftentimes a slave to dopamine. This makes it so that they trade a short-term benefit over a larger, long-term payoff.
People who seek short-term dopamine fixes will seek short-term gratification, often at the sacrifice of long-term success.
Grant Cardone had a really good quote when he said:
"It's important for you to pay the price today so that you can pay any price in the future".
I believe this is indicative of how important short-term sacrifice is... pay a small price right now so that you receive the future benefits.
However, extreme sacrifice is also bad.
I saw it myself when working as an investment banker.
I saw managing directors who were often in their 40s or 50s, who had sacrificed all of their 20s and 30s, and were very miserable.
They often indulged in coping mechanisms like alcohol, drugs and women in order to tolerate themselves at 50 years old.
When done in moderation, I definitely believe that sacrificing some of the short-term for a long-term payoff is in your best interest - as long as it’s not brought too far.
Sacrificing too much is also very prevalent with medical doctors since they often begin practicing when they're ~32 years old and with a few hundred thousand dollars of debt.
So remember, it’s all about balance.
The Solution AND HOW TO SUCCEED
So how is this going to help you with your trading and how is it going to allow you to amass significant wealth?
Like I said earlier, it's all about balance.
You want to avoid engaging in short-term self-destructive behavior, such as eating junk food, consuming seed oils, or taking risks that spike your dopamine levels.
While these behaviors may satisfy your short-term craving, you’re sacrificing a larger payoff in the future.
With respect to trading, trading too often usually leads to a short-term dopamine hit and you're also training yourself to enter trades that you shouldn’t enter.
One of the most important aspects of trading is knowing when to trade and when not to trade.
Every time you place a trade, you need an edge.
In addition to the numerous research studies that indicate that around 99% of day traders lose money (and those who make money end up earning less than minimum wage), the geometric return of day trading proves that it has a negative expected return (assuming a 50% win / loss rate) because when you lose, you need to win a larger amount just to get back to where you were previously. As a result, winning 50% of your trades, with the same expected return on your wins and losses, is not enough.
By selling option premium, you have a statistical edge, however, you MUST control your tail risk or you can still lose money even if you win up to 98% of your trades.
When selling options, it's vital to be selective when opening and closing trades.
If you trade too often then you're going to train yourself to not be disciplined and patient.
Once a trade gets challenged, you may experience panic and anxiety.
There is also correlation risk when trading, meaning that if you have a challenged position, then many of your other positions may also be challenged.
As a result, it's important to think long-term and don't give in to short-term desire to trade too often, because it may impair your long-term success.
By resisting the urge to give into short-term pleasures, you’re able to improve your discipline and patience (think of it as a muscle that you can strengthen).
Avoiding Tail Risk and Reducing Portfolio Volatility
When trading options, it's important to reduce portfolio volatility and minimize drawdowns.
In fact, your primary goal when trading should be to minimize portfolio volatility.
The best ways to do this are:
1) Trade spreads, do not trade naked options
2) Buy options to protect your portfolio against volatility expansion events and tail risk
I discuss this in greater detail in the Education Course at Options Trading Course and Signals
You can easily live a better life by challenging yourself, becoming more disciplined, and not giving in to short-term dopamine-seeking behavior.
This will allow you to be more successful long-term
You can visit BestStockStrategy.com and enter in your email address to receive $400+ of valuable free options trading content.
Frequently Asked Questions (FAQs)
Why do option traders fail?
Many option traders fail because they engage in low probability trading and do not minimize their tail risk.
When selling options, it's possible to make money on 98% of your trades and still lose money overall.
Controlling for tail risk and black swan events is extremely important.
How can I be successful?
Learn valuable skills and build good habits.
Avoid drugs, alcohol, processed foods, seed oils, etc.
Be your own best friend and make the necessary sacrifices to increase the probability that you'll be successful.
What traits do successful stock market traders have?
The most successful behavioral characteristics of successful stock market traders is that they only trade when they have an edge and they also know how to reduce and minimize risk.
It's important to reduce portfolio volatility and reduce drawdowns so that you do not lose money when trading.