As most veteran traders can attest, speculating on a stock’s next move can be much more difficult when there’s actual money on the line. Hypothetical bets are easy, and often profitable. When actually taking on a true monetary risk though, perceptions change, and confidence can wane. Sometimes this indecision can even steer you into exiting a trade shortly after it’s entered, only to miss out on what eventually ends up being the right call. 

There’s a psychological term for the phenomenon… a couple of them, actually. Cognitive dissonance describes the mental discomfort linked to holding two conflicting beliefs — in this case, two different trading outcomes that both seem distinctly and equally possible — while ordinary fear can warp an otherwise-unbiased view of what a stock’s likely to do next. When you combine the two forces without taming either, you’ll eventually stumble into a trading disaster.

If you’re reading this then you’ve probably already heard plenty of tips about how handle this complicated psychology of trading. And, there’s no reason to dismiss those tips, particularly if you find them helpful.

Such psychological self-management, however, looks right past trading’s most common pitfall. That’s the fact that your trading process is more important than your stock-picking prowess. 

That’s a tough idea for some people to swallow, and understandably so. Most of the trading industry’s tools are aimed it identifying budding trends nobody else has spotted yet. It feels as if identifying the next move is not only where the money is made, but the aspect of the trading business that you should be most focused on.

That’s just not the case though. You should be just as focused on — if not more focused on — your trade selection and position-management approach. Namely, you should take the risk of emotionally-charged decisions completely off the table by automating your entries as well as your exits. 

In other words, “set it and forget it.”

It’s admittedly tough to do. Active traders typically prefer to manage the key aspects of any trade, like deciding when to pull the plug on a losing trade, or deciding when to lock in a profit. It feels good to be able to exert this degree of control. 

It’s also dangerous though. Again, emotions like panic, euphoria, and the sheer fear of missing out on a gain can spur misguided entries and exits.

Big Daddy Options’ trading strategies are built from the ground up to circumvent these risks by pre-establishing the two key parameters of any trade. Those are the price target, and if necessary, a stop-loss level.

Think of a stop-loss as a safety net. This is a pre-determined price at which an exit is automatically made on a trade that’s not moving in the predicted direction. These trading instructions can be put in place as soon as the position is opened, and left in place as long as the option is held. You don’t have to actively send trading instructions when you want to pull the plug on a trade; you don’t even have to be watching the trade. These exits happen entirely on their own. This technique removes emotion from the mix, which is important, since feelings like regret or denial can erroneously convince you to stick with a trade you clearly should get out of.

As for profit targets, or sell-limits, these are exactly what they sound like… an automated exit when an option trade achieves the sort of gain the chart and trade signal initially suggest is possible. By taking this on-the-fly decision off the table, the greed-driven risk of trying to squeeze out a little more profit is eliminated as well. 

This is no small matter. Many sizeable winning trades have turned into smaller wins — or even outright losers — simply because traders talked themselves out of ignoring their initial profit-taking plan. Like stop-losses, Big Daddy’s profit targets are established right at the same time a new trade is opened. 

The great irony is, such a hands-off approach actually allows you to trade more confidently rather than less confidently. When your purchase signals are proven and optimized, you can act on all of your trading prompts as needed… without fear of second-guessing. Your safety net is already in place at the onset of a trade, as is your target. Both are already based on the algorithm driving your trades, and already tested to maximize your reward while minimizing your risk. The key of course is building a winning trade-generating system that’s proven by back-testing, and can replicate trade suggestions over and over again.

Bonus: By automating your entries and exits, you free up your time to do things other than watch computer screens all day long. Less can be more. And for most options traders, it should be.

To learn more about the Big Daddy stop and target-setting strategies, click here.