Option Trading Discipline

Today I want to share one of the most important trading lessons I've ever learned - how to be disciplined and patient with your trades.

Believe me, this one was a loooong time in the making.

I used to be an extremely lazy trader.

Part of that was because - no b.s. here - the value investing with options approach I've developed has a lot of structural advantages built into it.

Structurally Advantaged Option Trading Strategies

I basically learned to employ certain option trading strategies where I made great returns (15-25% annualized) if I were right on what the share price was going to do.

But I could still often make what I considered to be solid returns (5-15% annualized) if I were wrong.

I call it "renegotiating" with Mr. Options Market.

And here's a documented example where I did exactly that on a series of trades with PEP.

Now, being "wrong" but still generating solid returns over time breeds a certain carelessness. At least it did for me.

And, of course, carelessness eventually results in catastrophe - or at least some pretty negative results you wish you could have avoided.

What Happens When You Screw Up

When you screw up, you essentially have two choices.

You can either pretend it wasn't your fault or that it never happened.

Or you can take responsibility for what happened and try to learn from it so it doesn't happen again.

It's like that Winston Churchill quote:

"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing ever happened."

Self-examination is not always fun (and no, I'm not talking about that kind of self-examination), but persistence without growth and self-accountability only leads to obstinacy.

So how does all this relate to discipline and patience?

How I Learned Trading Discipline and Patience

The short version is that when I learned to incorporate basic - and I do mean basic - technical analysis into my investing-oriented option trades, my perspective totally changed.

Yes, my results also improved (obviously) but what was most exciting to me personally was that I could suddenly see things I hadn't been able to before.

I remember my 6th grade teacher, Mrs. Paul, who wore these thick, Coke-bottle glasses.

She told us the story of when she was eleven years old and got her first pair of glasses.

Up until that point, she said, she never realized that trees had leaves.

Do you want to be patient and disciplined - and more profitable - with your trades and investments?

Learn to see better.

The Importance of Clarity

The more clarity you can bring to the process, the more discipline and patience you'll automatically have.

It's not that you'll develop better, more responsible attributes.

It's that things will just become more obvious.

Imagine my 6th grade teacher trying to cross a busy highway on her own before she got her first pair of glasses.

If she really listened intently, squinted real hard, and made a lucky break for it, she might actually make it.

But give her a pair of glasses so she could actually see the traffic and what might look like discipline and patience to an outside observer is really just the ability to accurately judge a situation.

Seeing Your Trades Clearly

That previous PEP trading example where I was "wrong" (for most of a year, in fact) but still ended up booking $2344.73 in profits when all the dust settled?

If I had incorporated basic technical analysis into my initial trading, like I do now, I would have seen the huge, classic double top that had been forming in the stock and could have completely avoided all the drama.

Yes, I was "wrong" and still made more than $2300.

But if I had gotten a pair of trading glasses, I could have found myself in a situation where I was much more likely to be "right" and ended up making a hell of a lot more than $2300 over the same time period.

Great Set Ups vs. Average Set Ups

Here's another good example:

I've recently (October 2013) added a new Option Trading Ideas feature to The Complete Leveraged Investing Program.

The trade idea I shared with the Leveraged Investing Community two nights prior to me posting this article was one where the underlying stock was sitting right at a support area - but I recommended NOT pulling the trigger on the trade unless the stock broke below that level.

In my judgment, it was the next lower support level that provided the real opportunity.

Will the shares trade down to that level?

Maybe, maybe not - I really don't know (technical analysis isn't about predicting the future with precision as much as it is about understanding which way the wind is blowing).

But if the shares do trade down to that lower support area, I see it as a great potential set up.

And I'm willing to wait because I also see that setting up the trade too early not only diminishes the potential returns (and rather significantly), but it also increases the risk that I would have to spend time and energy repairing another "wrong" trade.

Investing Lasik

Do you have a coherent, long term investing plan?

Do you want to see the market more clearly?

Can you tell the difference between a great trade set up and a mediocre one?

I put together The Complete Leveraged Investing Program to help individuals stack the deck in their favor and to see clearly how and why they're stacking the deck in their favor.

After all, there are only so many factors that go into a trade - and when you identify those factors and learn to line them up in your favor, most of the battle is already over.

But this is not about me randomly picking a potential trade every week and encouraging you to blindly trade it.

There are a million services out there that already do that.

This is about me helping you become a better trader and investor.

The bottom line is this - I'm committed to your success if you are.

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