Most common reason for losses especially trading options, I have made these mistakes myself, most of the time it wasn't the setups, but mental psychology and risk management!
1. Protect the capital first before profit, many traders want to make so much profit out of greed, but when preserving the capital is far more important!
2. Not securing profit, then letting a winning trade turn into a big loss, risk management is EXTREMELY important!
3. And, not selling this is RELEVANT to options when the whole market tanks, JUST sell, even at small loss because options have expiration, and theta decay, premium loss, etc, just sell the trade because market can keep on tanking for the next few days, and those losses will turn into bigger losses and are EXTREMELY hard to make back with options, stock has to move up exponentially high in a limited time frame to make back the losses, and averaging down isn't always the best option!
4. And, not selling the trade even at small loss when the trend has REVERSED or when stock is just trading in a range! Cut the loss quickly, focus on risk management rather! You free up the capital to trade a winning trade!
5. Opening too many trades is sure way to the poor house, many noobs forget RISK MANAGEMENT! With options, best not to open too many trades, unless you close the previous ones first! Market can turn on you anytime and eat you alive!
6. Risking too much capital, emotions plays big part when you have a lot at stake, even if the winning trade turns red temporarily, but if you are risking too much, emotions can turn a winning trade into losing one quickly!
7. Remember to lock in profit, EVEN break even is better than a loss, better to not make any profit than to lose capital! Forget "diamond hands" take your profit and go home!
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