Kevin Cook

May 24, 2024 5 mins read Knowledge hub 378 times

Top 05 Reasons 90% Fail in Option Trading

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Kevin Cook

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People are very interested in options trading because of the potential to make more money with relatively small capital in a shorter time frame.

However, there are risks involved. Traders often get greedy, aiming to double or triple their money quickly by investing a significant part of their savings.

So, what makes the traders fail in options trading?

1. Option Trading requires patient to study market

• Without patience, traders enter trades hastily wanting fast profits, instead of waiting for high probability setups.
• Impatient traders are in a rush to exit, actively closing losses prematurely and passing up chances for positions to profit over time.
• Lacking patience, they actively sell winners early, failing to benefit from trades that could gain more if only given more time.
• Small price swings actively sway impatient traders’ decisions, overriding discipline and causing them to react instead of holding for directional confirmation.

2. Greed to earn more is less time

• Option traders see big wins of others and get lured into taking bigger risks than they should.
• This makes them bet more than they can afford hoping for huge payoffs.
• Traders refuse to cut losses and stick to losing trades waiting to recover money.
• In the end, greed makes traders lose sight of protecting their funds and they actively lose most of their capital due to unrealistic dreams of profits.

3. Lack of Education

• Traders jump into options without grasping the complex risks involved.
• They make bets without fully understanding different strategies and how to use them.
• Traders do not learn correct money management and lose control of their trading.
• This causes them to actively put themselves in situations beyond their knowledge and skill, leading to avoidable losses.

4. Getting Influenced by Fake Gurus

• People see big projected profits of influencers online and get lured into thinking it is easy money.
• They hastily open accounts hoping to replicate profits without accepting the risks influencers took.
• By believing options only need small capital but fail to manage risk properly as capital grows.

Following examples of a few successes, most traders actively ignore that influencers achieved through complex strategies.

5. Lack of Risk Management

• The market does not move predictably for long periods, causing many traders to actively choose the wrong strike price and incur losses.
• Traders actively enter positions overnight or hold them overnight, exposing themselves to unexpected market movements that can then cause losses the following day.
• Many traders actively overtrade and sit repeatedly trying to earn profits in both the morning and afternoon.
• A lack of risk management causes traders to actively fail to curtail losses when trades move against them, resulting in losses exceeding 1% of their capital.
• New traders often attempt complex trades prematurely instead of actively starting with index options like Nifty that are more suited to novices.
• Traders make losses if they actively follow others’ strategies without sufficiently understanding the market themselves first, as independent analysis is needed to earn profits.