How do I become a more consistently profitable trader?

This a question I am asked time and again.

So, I was going through my Rising Star and Options Market Wizard interviews to find answers that are relevant to current times, I thought to revisit an article I wrote almost 15 years ago in Jan 2007. Given the longest bullish market we experienced in the last decade and meme stocks gaining popularity amongst many other things, I found this to be more important now than ever and tend to confirm to this. So, let me share what makes or breaks it.

A successful trading career isn't built on luck.

While many people aspire to become full-time traders, a wide majority of them fail overtime because they aren't making enough money or not doing so consistently to call it a reliable income source. Contrary to popular belief, options’ trading is relatively simpler but it’s a craft and it takes time. One needs to learn the craft, re-calibrate after going through ups and down and also be lucky enough to survive through a complete bull & bear market cycle before one could call it a full time profession.

Here are key factors that affect a trader's performance:

1. Wrong Mindset: The single biggest issue that new options traders face is the mindset. The first thing typically a new option trader does is to TRADE OPTIONS LIKE STOCKS. Because it what he or she understands best. He buys the options with “Buy Low, Sell High” objective and if the underlying asset doesn’t move, he becomes a long term trader, just like buying and holding the stocks. Or worst, he is right about the direction, but his option still doesn’t make money. Ouch!! Needless to say, the story doesn’t end well.
2. No Vision, Objective and Goal. Why do you want to trade options? A real simple answer will be “to make money”. However, I think if you ask yourself few more questions, you will realize that there is something else. Is it because you love numbers, action of the market, ease of liquidity, or can make “easy money”, have low capital, etc? Have an end in the mind, set your objectives and goals for the year and year after, and of course have progress measures in place.
3. Failure to have a trading plan in place before a trade is executed. Without a specific trading plan, a trader does not know, among other things, what and how to play and why, when or where he will exit the trade or how much money may be made or lost. Traders with no predetermined trading plan are flying by the seat of their pants, and that’s usually a recipe for a “crash and burn.”
4. Poor Money management. Part of trading success boils down to proper money management and not gunning for those high-risk “home-run” type trades that involve too much capital at one time. In the trading environment, we will win and lose. However, we need to be more right than wrong and when right, be big on right. When I was winning I averaged up. But when it started losing, I didn’t cut the losses. As you may know, options swings a lot +/- 30-40% in one day isn’t surprising. Imagine if you are fully invested and if the tide turns opposite to your direction, you can lose 30-40% in one day. My rule of thumb is a maximum allocation of 5% of overall portfolio per trade/underlying. You may choose yours, but please have one in place. Learn to use risk/reward measure before starting a trade.
5. Expectations that are too high and too soon. New traders who expect to quit their “day jobs” and make a good living trading in their first few years are usually disappointed. You don’t become a successful doctor or lawyer or business owner in the first couple of years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor — and trading is no different. Trading & Investing the markets is not the easy. It's probably the most difficult endeavor you would take for an easier life.
6. Lack of “patience” and “discipline.” “Greed” and “Fear” will test your emotions time and again prompting you to make wrong decision, at times. Patience and a disciplined approach are two key things that unsuccessful traders lack. Indeed: Don’t trade just for the sake of trading or just because you haven’t traded for a while. Let those very good trading “setups” come to you, and then act upon them in a prudent way. Markets will behave the way it behaved in each cycle, market makers will do what they are supposed to do — but no one except you, yourself, can force you to take poor trades and set-ups.
7. “Overtrading.” Trading too many markets at one time is a mistake — especially if you are racking up losses. If losses are piling up, it’s time to cut back on trading, even though the temptation is to make more trades to recover the recently lost assets. It takes keen focus and concentration to be a successful trader. Having “too many irons in the fire” at one time is a mistake. Separately, just like any other business, there is a life beyond “trading life” as well.
8. Failure to accept complete responsibility for your actions. When you have a losing trade or are in a losing streak, don’t blame your broker or someone else. You are responsible for your own success or failure in trading. You make the decisions. If you feel you are not in firm control of your own trading, then why do you feel that way? You should make immediate changes that put you in firm control of your own trading destiny.
9. Not getting a bigger-picture perspective on a market. One can look at a daily bar chart and get a shorter-term perspective on a market or stock trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different picture. It is prudent to examine longer-term charts for that bigger-picture perspective when contemplating a trade.
10. Trying to make back all your losses in one trade: Everyone makes losing trades. Imagine this, you get a few losing trades in a row, one after the other, and your account is smaller than when you started. You get frustrated and angry. You decide to take revenge on the market and try to make up for all your losses and then some. So, the next trade you make, you increase the number of contracts or shares because your rage is overpowering your discipline and you’re sure that this trade will be “the one”. And, as the luck would have it, you’re probably wrong. The trade turns out to be loser as well and your account is even deeper in the hole. Sure, it might have been a winner, but it’s not worth the risk! Don’t let your anger control your trading. Just because you’ve had a string of losers doesn’t necessarily mean you are due for a winner. If you’re in the situation of having nothing but losing trades, a better idea would be to review your trading plan and see if there might be fundamentally wrong with it. If need seek help of a coach. Then plan to correct what's wrong and see if that improves the results.
11. Stopped learning: Continue to sharpen your craft by doing research, reading books, articles or listening to good mentors. Everyone is getting smarter and more capable these days. The difference between the educated retail trader and the professional trader is getting smaller and smaller. That’s both good and bad. It’s good that bid/ask spreads are tighter now than they have ever been. But it also means that the industry is more competitive. Knowing what an iron condor is or how to calculate a roll value isn’t enough. There are many traders who already know that stuff. Making money in trading is hard work. You have to be willing to devote the time and energy to try to find an approach that suits your life style and might actually make you money.

These are my key thoughts. Let me know what do you think? are there other important things that are crucial for succeeding in trading? What has been your experience?

Happy Trading