#411 - The 80/20 Rule Applied To Options Trading

Episode of: The "Daily Call" From Option Alpha

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Nov 7, 20183m
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#411 - The 80/20 Rule Applied To Options Trading
Nov 7 '183m
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Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be talking about the 80/20 rule, but applied to options trading. We all have heard the 80/20 rule in some form or fashion basically that 20% of your inputs is responsible for 80% of the output or 20% of the population holds 80% of the wealth. Whatever discipline or vertical it's applied to, we all know the general concept. Well, I want to put a little bit of a twist and spin on that and tell you that in trading, I think the 80/20 rule applies as following. 80% of trading is psychology, 20% is mechanics and that's the twist that I think you should really hone in on here today and think about over the next couple of days, is that trading is really a mental game. In fact, it's the most mental game that you could possibly be in because you have money, you have moving numbers and charts, you have geopolitical issues, you have consumer issues, global issues, country risk, company risk. There are so many moving parts, it becomes an entire game of just mastering your mind and mastering your psychology, controlling or removing your emotions from the decision, so that you can focus all of your attention on just the things that actually drive results which in many cases is just this 20% mentally is the mechanics.

Most of trading is not a mechanical game. It's very few mechanics. The actual process of entering trades and closing trades and looking at positions, that's the small side of trading, in my opinion. That's frankly the easiest side of trading. The hard part is getting over the psychology, holding through a losing trade and not using a stop loss, taking profits early in the expiration cycle and not being greedy to hold potentially all the way through expiration. A lot of those psychology things, you have to get over and that in some cases, comes with time or could be used… You could use technology to do that. Hopefully, we’ll have the ability for you to do that with our auto-trading platform here in the near future. But I think that this concept, the 80/20 rule is really, really interesting if you look at it in a different light for options trading. That's what I want to leave you guys with today. As always, if you guys have any opinions or thoughts, let me know. Hit me up on Twitter, Facebook, wherever you guys can find us. Shoot me an email. I’d love to know what you guys think about this and until next time, happy trading.

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