Even a losing trade can be “money well spent"

"Even a losing trade can be "money well spent".

It was the scene of a crime. There was no blood, but the damage had been done. I had repeated the same error I had done on several past option trades. Like a crime scene investigator, I put back the pieces of what had happened. The "vic"-me-had been overcome by the fear of being wrong but it wouldn't happen again.

"Live and learn"-if your smart enough. Unfortunately most would-be option traders learn mainly after getting hit over the head or slapped in the face; a reduced investing account balance and bruised ego act as a surrogate for a bloody nose and a knee in the groin. For an ill-prepared option trader, lessons can be costly and limited to just a few. Usually the last lesson is when you understand that you are over your head and don't know what your doing. You put your tail between your legs and head back toward mutual funds and conservative buy-and- hold stocks.

Here's your first lesson about stock options: get educated about stock options before you trade options. Sounds obvious, but only about 10% of stock option traders have taken professionally prepared courses on the subject. An industry cliché is that about 80% of all options expire worthless. Other cliché statements tout that only about 10% of option traders are successful. Is there a correlation here?

Learning never stops. Once you understand the theory, your practical trading experience will be a life-long mentor-if you document and analyze each trade. An excellent tool to help keep your eye on the ball and continuously improving is the trading journal.

Once a trade has been completed, not only do you analyze the technical aspects of a trade but also your state of mine. What were you thinking? How would you do it differently next time? Make your experience count. But just merely writing it down doesn't count if you don't take the time to analyze it.

date of trade

symbol

# contracts

open price

total $

close price

total $

fees

net profit/loss$

%

Trade comments:

When you take the time to write things out and analyze after each option trade has been closed out, you'll constantly improve and even a losing trade can be "money well spent". The act of writing forces you to concentrate on what you are writing. Just thinking is not as effective. In the trade comments, make note of the things that happened and what to do next time you encounter the same or similar trade opportunities. By doing some introspective self-analysis of what you were thinking and feeling at the time, option traders will see how important it is to stay balanced, disciplined and detached. This self -analysis is very important for a trader and don't skip this step.

On weekends and non-trading days, review your journal and look for patterns in your trading that may be causing losses or successes. Once patterns are identified, you're really climbing the learning curve.

Most traders evolve and as they do, so does their system. Constant analysis should be a very important part of a traders discipline and the Trader's Journal should be an integral part of your trading system.