Lesson Overview

More "Robot-Like" Trading

One of the main ways to increase our trading consistently is to have a set of rules, guidelines, system, plan (whatever you want to call it) in place to follow. This removes your emotions and gets you trading more "mechanical" or like a "robot". And that's a great thing in this business! You don't have to follow these to the "T" and feel free to mold and edit these to fit your trading style and goals.

Show Video Transcript +

In this video, I want to talk about robot-like trading. I just used the word robotic, but I’ve heard other people say mechanical, systematic, whatever word you want to use.

The whole concept here is that we all know that the less we invest emotionally, the better our ability to make profitable decisions becomes and this whole idea that we get scared and we get fearful and greedy at certain times during the market.

And if we can remove our emotions and make smarter decisions by looking at things from a different angle, we end up being more successful in our trading.

I know I found this every time that I implement a strategy to automate something or systematize something, I become more successful long-term. This concept of making systematic or robotic-like decisions should always be applied to options trading in particular.

I believe that being more robotic about our trading starts with defining some if/then statements that help us make decisions and this is non-emotional decisions that we’re making and this is how computers make decisions for the most part.

If you press this key, I will show this letter on the screen. It’s always an if/then and as many times as we can make if/then statements about decisions that we should be making about trading, we’ll become better and more successful doing it.

For example An if/then statement might be, “If implied volatility is high, then we should be net sellers of options.” If implied volatility is high and we have this statement in our plan or our system.

Then this eliminates the ability for us to enter trades that are net buyers of options and we remove our emotion no matter how good the trade looks, no matter how beautiful the setup is, no matter how many technical's you're using that all point to the same thing.

If implied volatility is high, then we should be net sellers of options. It helps narrow our focus to the strategies that are just suited for high implied volatility markets.

I always say make it automatic as many things as you can automate in your life, not only in trading but in your life, the better off you’re going to become. Here are some things that you can automate about trading.

You can automate your trade entry criteria. Have some check list of things that you go through. We published our seven item check list for trade entry right here on optionalpha.com. Inside the membership area, you can get that.

It’s a free download, and you can use and go through it. It’s the seven things that we c heck before we make every single trade that we publish to our members.

You can also automate the size of your position or your trade, so how much money you're allocating to each trade that you’re making.

We have a guide inside of the membership area at optionalpha.com that helps you with this, understanding what position size you should be using based on how much money you have available in your account.

And we can automate when we make adjustments. One of my favorite things to do about making adjustments is setting and creating alerts inside of my broker platform.

I will enter a new trade and immediately right behind that new trade; I can setup some alert criteria to let me know if my target Deltas get hit so that I can go in and make an adjustment.

This removes my emotion from the trade because if that alert comes to me via email, then I know I’ve got to take action on it. It’s if that email comes to me, I’ve got to go then into my broker platform and make an adjustment.

There’s no thinking or emotion involved in this. It’s just automatic; it’s robotic-like. And number four, we can automate when we exit trades. Just like we can create automatic alerts for ourselves when stocks hit certain prices or options hit certain Deltas.

We can also create automatic closing orders to get us out of trades at predetermined targets. If we know we want to get out of a trade once we’ve reached a certain profit potential, then we can go ahead and set that up automatically, so that if the trade gets to that point.

It closes it out for us, and we don't then have the decision of, “Do I want to make more money? Do I want to let this trade go a little bit longer?” Because then, we started thinking emotionally and we start becoming possibly greedy or fearful, and we can automate that system as well.

Now, of course, there will be things that you can’t automate, but the idea here is that you’re starting to build systems that take you out of the equation because honestly, we hold ourselves back mentally.

If we trade emotionally, then we end up seeing that we become very bad with our decision-making because we make decisions on emotions and we should. We should make them on logic and facts and numbers and more often than not, we don't.

If you have something that you can automate or make it more robotic, you end up being more successful long-term. As always, I hope you guys enjoy these videos. If you have any comments or questions, please add it right below inside the lesson page here.

And just as a side note, we do have full trading plans for you at optionalpha.com that you can go in and start to download and work through some guidelines and criteria that you can start to use as the basis for building your unique trading plan for options.

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