Last year left many traders frustrated. The "giant macro conveyor belt" was put on overdrive-- switching between risk on and risk off depending on the hour.
And unless you were an expert at recognizing multiple market cycles, it was a tough year.
But we're starting fresh, and it's time to put some resolutions on the board. What do you want to improve this year as a trader? I have a few suggestions:
1. Know What to Measure
Options behave differently than other instruments. Because there is time premium, different risks exist and these risks have to be managed.
I'll have a more in-depth discussion later on this month, but consider what metrics may be helpful to you. Performance tracking in options will vary depending on trading strategy-- performance for iron condors and income trading will be different than that of weekly option trading.
2. Get Educated
Continual learning is critical in this fast-paced market. While you don't have to completely change up your strategy, you have to learn how other players speculate in this market.
If you're brand new to trading options, consider my option training course, which will take you from the ground up so you will end up a more confident, profitable options trader.
3. Focus on the Process
Let's be honest... when it comes down to it, money in your account is what really matters when trading.
But if you focus on the cash, you'll underperform. Instead, focus on the processes that will make you a better trader.
For example, make it a goal to focus on defining and adhering to your stops. Along with your P/L and win rate, track how many times you go over your risk tolerance to stay in a trade.
4. Don't Get Stuck
There is a double-edged sword when using option strategies. A benefit of trading options is that you get a ton of versatility over time-- if you want, you can "roll" a position to manage risk and take profits off the table.
But you can get in trouble if you adjust an option position only to try and make back your losses. Sure, you may get them back and the agility provided by the options market can help with that.
The problem is that all the mental energy required to adjust and roll a position could have been dedicated towards better setups in the market. You then miss opportunities, which causes you to chase and then you get stuck again. This can turn into a vicious cycle
5. Volatility is Your Friend
Fast, ugly markets can be a boon for option traders if you know what strategies to select. You can't simply sell spreads and hope for the best, or try to play breakouts with option buys when the market keeps reverting.
It requires a little more nuance, but it's much easier to manage risk when you're on the right side of the trend and volatility.
What techniques and goals do you have in mind this year? Leave a comment and let me know!