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Should You Audit Yourself?

Hey 5-Star Trader,

Historically speaking, the summer months are normally where people take time off to be with their families and the market slows. While I highly recommend you get out there and enjoy the weather with your loved ones (I sure am!) this is also a good time to refocus your trading style.

Below are my warning signs of being an average trader ㅡ and my recommendations to overcome them.

  1. You have no trading plan.
    Having a trading plan is crucial to good trading. Just like a football player needs a playbook, flying blind in the market will hinder your ability to trade well. My recommendation is to find some setups and rules that fit well for you. Make a checklist and never violate these rules. You will thank yourself for this!

  2. You have no money management rules.
    With every trade you take, you should operate under the assumption you can lose it all. Though everyone’s risk tolerance is different, never risk more than you can afford. Always know the size of your account and consider the appropriate percentage of that you are willing to lose. Generally, my risk per position fluctuates between 1-5% on a trade depending on the aggressiveness.

  3. Your trading gets emotional.
    Try to avoid associating any emotions with your trading. Becoming nervous during a trade might make you risk too much. Becoming angry that a trade isn’t working could result in “revenge trading” and taking a setup even though it is less than perfect. Even happiness can be detrimental. If you make a good trade, you could easily slip into euphoria and risk a bigger amount on the same trade, but the setup could be weaker the second time around. Stay objective and only consider the facts of the potential setup.

  4. You don’t cut your losses fast enough.
    A major tool that every trader should become comfortable with is stop losses. By doing this you can cap your maximum loss. This is especially helpful if you don’t trade full-time or aren’t at your computer all day. A stop loss will protect you if the market takes any sudden turns for the worst.

  5. You watch every ticker.
    Watching every ticker is both impossible and a waste of time. Instead, pick a few and investigate them thoroughly. This will give you a good idea as to whether or not it’s actually going to be a high-probability setup. Inversely, you’ll also be able to tell if the setup is really not there as well. If nothing sticks, go back to the drawing board and start again.

Take some time to “audit” yourself with the recommendations above and prepare to take your trading to the next level. If you’re new to trading options or would like to brush up on the basics, get started with my introductory Options 101 course.

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