Trading options is hard enough. We cannot predict or control the markets (though let’s be honest, we all try on some level). However, you can learn to focus and control your mind if you give it the attention it deserves.
On this podcast, we discuss 15 important questions that can guide you on your trading journey. The topics are tailored to help you dig deep into your psychology around trading.
The questions are broken into three sections:
Each section contains five questions that a trading coach might ask you –and you should ask yourself repeatedly– to help identify a harmful mindset that could affect your trading.
We hope you’ll come back to this episode and use the questions to coach yourself and improve your mindset as you continue to trade.
- What process do you use to evaluate new trading opportunities?
You should be able to explain your entire thought process, including the indicators, systems, and tools you use to filter opportunities. For example, how do you identify a potential trade, and what do you use to establish your criteria?
- What process do you use to manage existing positions?
Your trading strategy should have detailed rules for exiting positions. Determine when and why you would close a trade based on profit targets, stop losses, and trade duration.
- How do you evaluate a trading system? What criteria do you use?
It is extremely important to understand what goes into your strategy so that you can conserve your time and maximize your ability to focus. It is also equally important to track the success of your portfolio to identify the strengths and weakness of your system. Here is a list of popular performance metrics used to evaluate a strategy.
- How do you adapt your strategy to changing market conditions?
Learn to identify when your strategy is (and isn't) working and what factors influence its success so that you can make necessary adjustments as the market environment changes.
- Are there any "universal" rules or laws that transcend your strategies?
Look at your holistic, individual philosophy for trading to help guide you in a more general manner and keep you on course.
- How do you handle drawdowns? When do your emotions take control?
You need to have an understanding of your emotional reactions. We want to make logical decisions, but that does not mean we can completely transcend our feelings.
- What have you learned from your worst trades recently?
This requires you to go back and examine your losses so you can explore what lessons to learn from and how to avoid them in the future. It is one of the 14 characteristics of highly successful option traders.
- How do you differentiate between a drawdown and a flawed approach?
This is a very difficult question that may take some time for you to answer and will need to be applied to each strategy you are trading. All strategies have losing trades. It is important that you understand the difference between an expected drawdown and an overarching problem with your strategy's approach.
- What tells you to keep moving forward vs. shifting vs. giving up?
When do you stop doing what you're doing and start looking for a better strategy to trade? Remember, trading is a long-term game of numbers and probabilities. But you need to know when a strategy isn't performing as expected and how to react.
- Is your relationship with wins different than your relationship with losses?
This comes back to the emotional aspect of what we do and requires us to be honest about our connection to trading and our ambitions.
- How do you determine your trading strengths?
Start by identifying what you are naturally good at and ask yourself how you can leverage those strengths moving forward.
- How do you foster a healthy relationship with trading?
Think about what could add to the health of your trading practices. You need to put in the effort to build the habits and self-talk that are healthy and affirming.
- Do you use a journal to structure your thinking? If not, what is your self-assessment plan?
You need a way to organize your thinking and identify your strengths and weaknesses. This can be whatever works for you and suits your needs, but you need a method to review your past trades unemotionally. These five tips will help you evaluate and control your emotions.
- How do you manage the flow of information, news, ideas, and market information?
Trading is about using information and making decisions. However, there is so much information available now that you need a way to make sense of it and understand what actually benefits your trading without becoming overwhelmed.
- How do you overcome your own biases when you trade?
We cannot escape the fact that we have biases, but we can mitigate how they influence us. You need to know what they are and figure out how to minimize their impact on systematic, logical trading.
Learn more about trading psychology.