One of the four fears of trading is the fear of missing out, a topic that the late Mark Douglas wrote about in his book, “Trading in the Zone.” According to Douglas, fear of missing out is the most serious of the four fears, and I have to agree. The regret of missing out on a trade can gnaw at you for days and weeks – and even longer! I’ve felt it many times, and I am sure you have as well. In fact, I think that the pain from missing a trade is far worse than getting punished on a bad trade.
Unfortunately, you can easily miss opportunities when options trading, but who wants to kick themselves repeatedly? And how do you avoid missing out in the first place?
There are many ways to avoid fear of missing out, but here are my five tried-and-true tips:
Have faith in your analysis
We’ve all sold winners too early – and too late – and we’ve all missed trades for various reasons. It’s part of the game. Instead of dwelling on it, keep your eye on the charts and technicals and have faith in your analytical abilities. If you let frustration mount, you can easily start chasing after trades in an illogical and maniacal way, losing money along the way.
Book profits when you have them
Recently, I had a chat with a subscriber who had a nice winner with Google but was puzzled about what to do next. Once I pointed out to her that she had many choices – she could either cash in the winner now or roll it up into another trade – then her decision became easy. Worrying that the stock could go up without you is a horrible mind bender. Nobody wants to be left behind, yet this game is about booking winners and taking the profits when you have them.
Buy protection
Just like you would never think to buy a house without also buying homeowner’s insurance, you don’t want to buy options without also buying puts as protection against your portfolio. Yes, your profits won’t be as big as they might otherwise, but your losses will be far less severe, too.
Don’t let winners ride
If, like my subscriber, you are wondering about whether or not to let your trade ride, remember that time is our enemy – at least in options trading. The window of time during which we can win is much narrower than it is for a stock trader, who can roll through some volatility without risking total loss (in most cases). Letting your winners run works for stock investors, but it is deadly for option traders – option decay will always work against you.
Don’t be afraid of losing
Always allow yourself a chance to participate, and never be afraid to lose. In options trading, losses are part of the game (you just don’t want too many big losses!).
In short, you can overcome the fear of missing out when trading by watching the charts, taking partial profits and rolling up your position into a new play, buying protection, booking profits when you have them, and, above all, taking some risk and trading – you can’t grow your portfolio if you’re not in the game!
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