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I am losing in options trading? Is there any method to succeed in this?

Let me summarize it for you by using stock market quotes that we often read.

Whenever you take a trade, it always ends in either of the 5 scenarios:

  1. Big Win

  2. Small Win

  3. Break Even

  4. Small Loss

  5. Big Loss

If you can avoid the 5. Big Loss then you have every chance of becoming a profitable trader.

Taking a loss is easier said than done. Taking a loss which has gone too much out of hand is an emotional challenge. People love their hard earned money. So when they see their net positions turning into red, they freeze. They are unable to decide what to do next. This freezing and inability to act make them hold their position indefinitely. Finally, they take a loss when maximum capital has eroded. I log all my trades on my website Katwal Asset Management and one can after little research verify that some of my worst weeks happened because I held on to losses for too long. So first thing, Avoid taking big losses.

People go broke by taking a lot of small losses.

While taking a small loss is a good thing. It implies that you have disciplined your mind in a way that you understand taking a stop loss is part of the game. But if you are taking too many losses, then it means you don’t know what you are doing and exiting in panic or you are over trading. At least some of your trades should return in profit over a period of 10 trades. Let's say whatever system, even if it is a coin toss based system you are following should have a 50% probability of a winning trade. So second thing, Understand what is the probability of winning of your trading method.

One who understands Risk- Reward, understands trading.

Now if you take a trade, your expectation is making money out of it. But what if your trade reversed and hit a stop-loss? What if it hit a stop-loss 3 times in a row. Every time you hit a stop-loss of ₹2, you lost ₹6 in total. Your 4th trade was a winning one and you made a profit of ₹3. You are still in a loss of ₹3. So, Third thing is, Understand the Risk-Reward ratio of your trading system with winning probability.

Can one trade cover all losses and give profits if the previous 5 were losing trades? If yes, then good.

Profitable Trading is combination of these three factors. If you work on multiple stocks or index, then add Position-Sizing in the list. But if you can understand the importance of these 3 lessons that i put as an example, no one can stop from profits to come.

I personally trade strategies where winning probability is 50:50 but risk:reward is 1:8. These strategies if hit 4 stop-loss, then also gives me profit.

I also trade strategies where risk:reward is 1:1 but winning probabilities is 95%. There I make loss 1 out of 20 times or I get a breakeven or a very small loss.

I also trade with such a position sizing that I have money to trade everyday and always have money to fight against risk of uncertainity or to hedge my positions.

If you can understand the logic behind these 3 lessons that I have shared in bold, you will eventually become profitable. Fortunately, these things are written in every trading book, but losing traders focus on strategy only and skip the most important part.

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Is option trading worth it?

Short answer is Yes. I have been trading in stock markets for last 10+ years and for 8 years our of that I have been an Options Trader. Trading is like any other business. You buy low and sell higher.


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