What do you worry about? 

What is the main thing that worries you in stock or option trading? A simple answer would be: risk. However, this answer is incomplete. Only investments in government securities are risk free. You enter the stock market ready to take risks and expecting to be fairly compensated – that’s how it works. Therefore, to define it more precisely, your worries are concentrated around the key question: “Are the risks you take worth the rewards?”

What kind of market play would fit your requirements and keep you worry-free? Let us consider a hypothetical situation: you toss a coin and see what you get. If heads, you lose $1. If tails, you get $1,000. Would you agree to play this game? Of course, you would - the solution is obvious. Unfortunately, situations of that simple kind do not exist in reality. 

Real market situations are much more complicated. Non-professionals usually don’t feel 100% comfortable about the decisions they take. Solutions to complicated problems are rarely obvious and often lead to stress.

When you don’t have the fundamental knowledge about something and can’t estimate risks and rewards, you turn to your intuition and emotions. Hope, fear and greed are popular emotions but by no means can they be strategies. Decisions should never be based on emotions: positive emotions can strip you off the risk precautions, while negative emotions can trigger hesitation. The ‘big boys’ of the stock market can easily leverage your decision-making by spreading rumors and, for example, ‘shaking stocks off weak hands’: you get emotional and do exactly what they need you to do. How do you like being manipulated? Isn’t it better to have your own trading system based on facts, not on emotions?

Trading is a psychological game. Most people think they're playing against the market, but the market doesn't care.  You're really playing against yourself, against your emotions that paint a simplified picture of the actual market. But the reality is that complicated situations cannot be resolved with simple intuitive decisions. 

Another popular mistake is to underestimate the fact that losses are merely the cost of doing business. Each decision can have a different outcome, but the only right way to assess the quality of your decisions or your trading technique is to consider a flow of decisions. Statistical regularities can only be revealed through a series of observations.  For example, a tossed coin can land on either of its two sides. The frequencies of getting heads or tails will be approximately equal if a series of trials is made. Such experiment tells us the following: if you want to place a one-time bet, then stock trading is not for you. You can be a successful trader only if you follow a certain methodology in a rather long sequence of trades. 

The stock market is an ocean, where one wave comes after another. Take the losses easy. Don't try to convince yourself that a bad trade will turn soon into a good trade. The stock market offers endless and overflowing possibilities. Prices keep changing and create other opportunities - missed opportunities exist only in your mind. Winning traders are able to ride through the downturn periods. The purpose of trading is to make a net profit in a sequence of trades. 

Perhaps, the only way to keep the worries away is to learn to think in terms of probabilities and perform upon them. There is a lot of uncertainty in trading. That is why you should learn to operate with approximate predictions and interpretations. 

Stock options are a unique tool: first, they reflect the collective opinion of the market players, and second, they estimate the probability of stock price going up or down

We should all be thankful to the technical progress, which provides us with online access to the amazing world of modern financial instruments. Such privilege has become available not only to the small professional community, but also to individual investors. It opens the door to the precise assessment of the risk you are willing to take for the return you WILL get.

This site publishes hundreds of Daily Notes as well as other research and education materials related to stock/index option trading, technical and fundamental analysis, etc. Unlike many other stock sites, it combines in one the complicated technical analysis and option math. Therefore, published picks are related to most predictable technical situations and based on the most suitable option strategies in risk-return terms.
Learn more about our approach and models here.

Our daily picks (Daily Notes) contain: 

Find more about our site on our Q&A page!

You can learn more about option trading right or find selections of books and the lead what and where to read. Open our comparison chart of option strategies. Visit also the CBOE education area for a complete overview of options trading.

Reminder

Please keep in mind the following three points:
1. Past performance does not guarantee future results
2. Our range of picks is broad enough for you to select the best ones – those that fit your portfolio, option strategy, risk averseness, industry focus, etc. Our track record shows that we make rational decisions based on rational models. If you stay with us and make frequent trades, the average trade will be a success. However, according to the rules of statistics, there is always room for risk and each individual trade can be either a success or a failure.
3. Options involve risk, and are not suitable for all investors. Every investor who uses options should read and understand the publication "Characteristics and Risks of Standardized Options" published by CBOE.

Disclaimer
vbvcb OptionSmart.com (a division of Stock Markets Institute) obtains information from sources deemed to be reliable. However,OptionSmart.com (Stock Markets Institute)  does not guarantee the accuracy of any of the information or commentary provided. OptionSmart.com makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. In no event shall OptionSmart.com (Stock Markets Institute) be liable for direct, indirect, or incidental damages resulting from the use of the information. OptionSmart.com (Stock Markets Institute) shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. 
OptionSmart.com (Stock Markets Institute) does not make specific trading recommendations or provide individualized market advice. The information contained in its products is provided as an information service only.