Going to share my thoughts on a couple of things to try to help some of you. I would like to see more on here "make the jump" or at the very least stop making the same mistakes. There are books devoted to these topics, I'm going to try to distill it into a post.
Risk management
Risk management is all encompassing and is the bed rock of being successful. This is applicable on every time frame with any risk asset. Also kind of applicable to life in general. Being wrong often is simply a part of this game. It is possible to make mistakes that have outsized impact backwards when this happens if your risk management is poor. In my opinion, there are a couple of key aspects to risk management
1) bias / ego / unwillingness to be wrong
2) position size
3) lack of plan
4) when you trade and frequency of trades
5) stop management
6) your own readiness
Bias - this is the cardinal behavior that drives everything else. When you have a big ego or aren't willing to be wrong, you will double down, size up, move stops / not have stops. Sometimes you will risk so big that you can't afford to be wrong. Sometimes you'll get mad and you'll want to prove to the market / yourself / your inner child that you are right. I do not think this can be completely mastered, we're not robots, but I think you have to have a VERY good grip on this and a process to avoid this. P.s. as soon as you think you're wrong, you probably are.
Position size - position size for long options that can expire worthless should always be "X" or less than X. No exceptions. Size should also be determined based upon time horizon. If you're trading weeklies, 2-3% at the most, likely with a 50% stop loss, so no more than 1.5% risk. You can overcome 5-10 of these mistakes and live to trade another day. Swings can be 5-10%, likely with tighter risk. For stocks, if they're small caps, I'd probably go max 20% of port size with tight stop management. Leveraged ETFs should be small and/or have tight risk management. For quality companies or indexes, I personally think it's OK to full port as long as you're accepting the risk! I feel this way because the asset will not go to zero and there are ways to defend. There are worse things than buying AAPL or XOM
Lack of plan - I believe many of you are guilty of this. You have to know in advance what you think might happen, what will confirm that you should try it, when or under what conditions you want to enter, and when you want to exit, good or bad. The plan is different for the time horizon. Many of you all see me trade 0 DTE. I take profits (and losses) quickly and my entries other than quick scalps are planned during pre-market. I am OK with it going to zero every time. Do not be a trader that says "this setup looks great, I'm going to get in and see what happens". Sometimes the market can surprise you in your favor, and you may get more than you planned, but on the downside, you will always get out when you say you will. You MUST know in advance what your stop will be. It can be low of day, it can be loss of momentum, loss an EMA, etc. Most good trades work almost immediately. Having a plan also prevents FOMO. FOMO is almost always a result of not having a plan and by the time you're FOMO'ing, so is everyone else and then buying or selling stops.
When you trade / frequency - There are better times and worse times to be swinging the bat. For intra-day, 11AM to 1PM central time should generally be a no-go for adding new positions. You should manage positions you already have on, but this is when the market generally traps, chops, and burns premium. The exceptions are post events and when there is volatility / volume, including certain types of trend days, normally to the downside. If you must trade intra-day or want to scalp, small size with clear tight stops and tight profit targets. Remember that the market behaves in only two ways: 1) trending and 2) consolidation. As long as you're not failing to recognize the trend (see #1 above), trend days are the highest probability times to trade assuming you avoid stupid FOMO on peaks. Consolidation always comes after trend days and for me one of the most difficult times to trade is in the inevitable chop after a trade becomes obvious, is crowded, and has a lot of people. I thought Friday would be one of those days, it kind of was, but Greasen called it well and I loved the insight he shared (I wish he and Lob Wedge Phil would post more TBH). Holidays, 3 day weekends, and the days before major events tend to be harder and lower probability times to trade. Alternatively, right after an event when the machines take over isn't the best time either. Monthly OPEX especially when it's quad witch is a day I somewhat avoid.
Stop management - I have somewhat covered this in other topics, but this is everything. Something I like to do is ask where most people will have their stops and then set my buy or sell orders there. Position sizing too large will result in either too tight of a stop or not having a stop. You have to give trades room to work and you should exit when you think you are wrong or the trade is not doing what you expect. Understand that market makers, especially Citadel like to play games and push things down to get your contracts. This mostly happens intraday and if you're not prepared to deal with it, don't play or play smaller. It is sometimes wisest to not have a stop in place and watch price action, but you need to know when you will seek to exit and do so gracefully. If you don't have the discipline for that, then don't do it. This premise is especially true on less liquid products like XSP, DJX, or NDX. SPY and QQQ are very liquid and shouldn't have this problem. I would trade SPY if it had the same tax treatment. For a lot of you, SPY is going to be the better choice. Spreads also have prevent this, but that is another topic on execution and strategy choice. If you are not able to handle this, trading is not for you. Alternatively, you can treat everything like a lotto trade and exit at 100%+ or 0%. If you have a policy of -50% and 100%+, you only have to be right 1/3 times to make money. There are great traders that are right less than 50% of the time. There are also traders with a 70%+ win rate that may not take huge profits but manage stops well. Some of the best advice I've ever gotten, and this will show up in "Trading in the Zone" is to expect and be okay with $0, but don't let anything go to max loss.
Your own readiness - I don't see this getting discussed very often and when I do it gets discussed as putting work in. That's part of it, but you need to be mentally on top of things to succeed. If you're distracted with work or other personal things, it's pretty difficult to be a good trader. Never trade if you're sick, hung over, emotionally compromised, or simply don't feel like it. It will show in your results. I think the same applies to your job - don't make the big decisions if you're not thinking clearly. After a big loss, don't jump back in, you're emotionally compromised. Go take a walk, reset, and be ready when you're ready.
OK, that's it. I hope this helps.
