When a trader has a winning mindset, when a trader understands that trading does not provide guaranteed riches, when a trader understands reality, he or she has a much better chance of becoming a winner in the trading/investing game.

I've been trading options since 1975 (since 1977 as a professional), and I've leaned many lessons. Today's post represents solid ideas that I believe can be useful for every trader.

I offer them with the hope that they will help you make more money over the longer term and more importantly -- save you from self-destruction during the earlier phases of your career.

 

1. Always know how much of your money is at risk. Consider the the worst possible scenario and be certain that your exposure to loss is never more than you can afford to lose.
    
2. Hope is not a strategy. Prayer will not help. When a trade goes bad, adjust or exit.
    
3. Establish a profit target for each trade. Be certain that seeking the potential reward is worth the risk.
    
4. Allow someone else collect the last few pennies of profit (i.e., cover short positions at a low price).
    
5. Define your own comfort zone. Don’t adopt that of another person. Trade within that zone – especially as a new trader. Later, you can consider expanding that zone.
    
6. Greed is not good.
    
7. Confidence is necessary for success. Overconfidence may result in blowing up your account.
    
8. Always know how much money is at risk. (Worth repeating).
    
9. Unlikely events do occur. Do not seek tiny rewards, despite the high probability of success, unless the worst case scenario results is a small loss.
    

1. Examine positions every day and decide whether they are worth owning at current market value.
    
2. All trades involve risk. Any profit that you already earned represents your money. It is not "house money," and you should be as careful with that money as with any other money. Translation: Do not take extra risk just because you currently have an unrealized profit on any given trade.
3. Understand that a loss does not have to be locked in (position closed) for the trader to know that he/she has lost money (past tense). When the market goes against you, money has been lost. Sure, you have an opportunity to earn money going forward (i.e., recovering the loss), but make no mistake. Money has been lost when a trade is underwater.

13. My number one tenet:  Risk management is the key to every trader's success. Correct position size is the number one step when managing risk 

I wish you good trading.