The right mindset and habits for trading options

Just as important as it is to understand the markets you trade, you should adopt the right mindset when trading. If you are looking to buy options in Singapore, you should have a sound idea of the kind of trader you are. Try not to go too far against the grain. If you are an aggressive trader, then you should lean into that. If you are comfortable with small wins, you don’t have to take big risks just because others are doing so.

Below are eight tips and good habits you can follow on your options trading journey:

Have a trading or investment plan

You should always have a plan before you make your first trade. These are a set of rules that will guide your trading decisions and mindset over time. You should include in your plan your trading goals, the timeframe in which you will trade, strategies, assets you will trade, your budget, and anything else relevant.

More importantly, you should know when to enter and exit positions when trading. You should also know when to set stop losses. If needed, you can create a visual map and put it altogether in a succinct manner.

Remember that while these are rules you should abide by, they are not set in stone. You should feel comfortable making adjustments over time. Often, this will occur when your skills have improved, or circumstances have changed. Permit yourself some flexibility, but make sure you understand what you are doing before deviating from your plan.

Only risk capital you can afford to lose

Trading is full of ups and downs and the financial markets are predictable only to a degree. Even if you have got oodles of experience, it is important to stick to a budget and only risk capital you can afford to lose. One bad trade can wipe out your savings, so it is better to be safe than sorry.

You should also be transparent about your trading habits if you are using funds that are shared with a partner or your family. Having reasonable expectations can go a long way, and so is learning to be content with small gains. If you are making progress, then you can steadily increase your budget and risk level. A good rule of thumb is not to risk more than 2% of your total capital, but this number can increase over time depending on your comfort level and experience.

Stick to strategies that work for you

This may appear to be a no-brainer. Of course, you should always stick to strategies that work for you when trading. However, when traders get into the swing of things, sometimes it may be tempting to try out new strategies to see if there is a way to increase gains.

The truth is a good strategy takes a long time to perfect and get the hang of. If there are one or two strategies that always seem to work for you, there is nothing wrong with only using those.

Do not overtrade

Overtrading is when you trade beyond your mental limits. Often, this stems from hasty decision-making and impulse. You should never place more trades than you can handle. You will not be able to monitor all your open positions at once, which can put you at significant risk.

Some people are naturally more apt in multi-tasking, and they can handle more than 10 open trades simultaneously. If this is you, you can go ahead and keep your positions open. However, if you know that you would much rather focus on keeping 2 to 3 positions open simultaneously, then you should stick to that. Again, it is about your personal, mental limits and what you can handle. What works for someone else may not necessarily work for you, and vice versa.

Do not stay wedded to an asset

When it comes to trading options, contracts come with expiry dates that impose natural limits on how long you can speculate on an asset. However, this is nevertheless good advice that some traders need to hear. If a stock is consistently performing poorly, there is no reason to continue buying Call options in hopes that the tide will turn.

A trader does not benefit from specific stocks. They benefit from opportunities. For some stocks, the opportunity just is not there. There is nothing wrong with moving on to search for greener pastures.

Similarly, if you have suffered losses from speculating on an asset before, you should drop the mindset of ‘getting even’. The markets are not as predictable as you may think. Your best option is to move on and find new opportunities elsewhere.

Set stops and limits

This relates to your risk appetite. Setting stops and limits is a necessary step in your trading journey. It prevents you from disastrous losses when your predictions are incorrect. (Which can happen to the most knowledgeable of traders.)

Setting stops and limits requires discipline. It also requires learning how to be content with smaller gains. For many, it is a mental game. You should set stops in less obvious places, perhaps just before where everyone else will place their stops. This way, you can have full control of your positions and have a healthy mindset in trading.

Understand market mechanics

One of the most important things is to get educated in options trading. The second is to understand market mechanics. Beyond knowing how to place an order, you should know what happens after an order is placed. You can learn about what happens on trading floors by visiting financial exchanges. This can give you a deeper understanding of market mechanics.

By appreciating the busyness of the trading floor, you can also realise that trading is not personal. The markets are not out to get you. Therefore, you do not need to trade with a vengeance or feel insecure about your trades. This can free your mind and allow you to trade with less paranoia.

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Track your progress

Finally, you should track your progress when you trade. This can be as simple as writing down your trades and reflections in a trading journal. Setting aside time to reflect on and analyse your strategies is a great way to improve.

Using a trade journal is also a crucial step in preventing yourself from making similar mistakes in the future. Simultaneously, you learn to take full responsibility for your actions when you can clearly see them for what they are, down on paper.

In your journal, you can write down your stock picks and predictions. You should also write down the reason why you have chosen certain stocks. Then, you should jot down a summary of current price movements. Use technical and fundamental analysis to back up your reasoning. Set a reasonable timeframe in which you will want to make a move, and your budget.

Whenever you close a trade, you should record the time of closing and the strategy used. Write down your gains or losses, your overall performance, and your reflections. This will help you adjust your trading plan going forward.


Good habits are fortified with practice, and many of them may not come naturally. Therefore, it is your responsibility as a trader to cultivate them. This requires discipline and patience, but it can free your mind and allow you to make better investment decisions.

If you are unsure about whether to place a trade, you should conduct the proper analysis. Never jump into trades without a plan, and never stay married to a certain stock just because you believe the tides will turn. When you have reasonable expectations and a good mindset, you can go a long way in trading.


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