Why Does So Few Options Traders Make Any Money?
Only About 5% of Options Traders Ever Make Money
The options market is decades old and since the beginning of the internet era, knowledge about options trading and the latest developments in options strategies and technologies have been made publicly available. Even www.Optiontradingpedia.com has been around since 2006! With such long term and widespread access to options trading knowledge and options strategies, even options mentors and training programs, one would expect that this "puzzle" has already been solved and the one way to profit consistently from options trading should have already been found and made widely available. However, even after decades of such development, still only about 5% of options traders ever make money from options trading... why is that so?
Even With The Same Options Strategy, Most Lose, Some Win
When I say "win" or "make money", I do not mean just making a single trade and then winning or losing. I mean being able to accumulate more wins than losses consistently over the long term thereby resulting in a net growth in wealth or a reliable monthly income. What I found most surprisingly in my two decades of teaching my proven options strategy is that even though I am winning consistently from the very same options strategy, I still see that only 5% of my students (or maybe 10%) really made consistent money from the very same options strategy! That prompted me to look further at why this is so and I found that roughly:
50% of my students actually never even tried to trade as such never made any money.
40% of my students proved to be incapable of following simple instructions.
10% of my students proved to be able to follow instructions and put in the practise over the long term in order to win.
Only 5% or 10% of the People Win At ANYTHING!
Then I looked around and saw the same pattern in almost any and every human endeavor; Only 5% of athletes make it to the Olympics and out of that only 5% win at the Olympics, only 5% of students make it to the best schools, only 5% of small businesses survive the first 10 years, only 5% of the people break free from the rat race of employment... the list goes on and on and on. I realised then that this is not only an options trading specific problem, this is a problem with PEOPLE itself! Its not that only 5% of options traders ever make any money, its that only 5% of the people win at anything in life at all! That prompted me to take an even closer look at what about the 5% of the people that result in their difference in performance versus the rest of the population and it turns out that there are a few things the 5% people actually do differently in life:
1. They are disciplined. Long term discipline bred through long term positive habits such as book reading and exercise.
2. They have MENTORS. Most of the 5% people are mentored in their respective fields by the best in the industry. They do not expect to become experts in anything just by watching youtube videos.
3. They delay gratification and do not expect instant wins. The willingness and expectation to put in hard work over time consistently in order to reap a future achievement is starkly different from the "fast food, get rich quick" mindset of the 95%.
4. They have realistic expectations. They know they limits and the limits of their fields of endeavor. They know the cycles of win and lose and learn to manage and ride those cycles for the long term.
Applying the 5% Mindset to Options Trading
I do believe that those 40% of my students who actually tried to trade but were eventually incapable of following the options strategy and its trading plans consistently over the long term is lacking in one or more of these areas. Understanding these differences (many more of cos but just quoting the most relevant ones) and learning to applying these mindsets to options trading should also give everyone a much better shot at becoming one of those 5% options traders who actually wins!
1. Become Disciplined! Indeed, discipline is one of the most important quality of successful options traders and one of the qualities that a lot of people who do not deliberately train themselves in the way of discipline lacks. In the modern society of instant gratification and easy access to indulgence, discipline is fast becoming an endangered quality. Only with discipline can one hope to be able to follow an options trading strategy or plan over the long term consistently without letting emotions get in the way of what they should be doing. Surprisingly, discipline is something you need to develop in daily life outside of options trading; reading 10 pages of a good book daily, waking up early to put in 15 minutes of exercise daily regardless or sun or snow, not picking up destructive habits like smoking anything just for "stress relief" etc etc. Only such small daily disciplined actions in daily life over the long term breeds the kind of discipline you need to trade options consistently over the long term. (not to mention the obvious health benefits and you may be surprised how much being in the peak of your health affects your options trading performance too. When your body do not feel optimum, your mind is not going to function at its optimum and you won't be able to trade options optimally too)
2. Get a MENTOR! I cannot say enough how important a successful mentor, someone who has successfully traded options for decades consistently, is. In fact, this may be the single most important success factor in your journey to becoming a truly successful options trader. This is because you are going to keep running into situations that you have not experienced before in the market simply because you hadn't traded options long enough (otherwise you would already be someone else's mentor right?), as such, having someone who has walked that way before and experienced it all before guide you in how to handle all these different situations is simply MANDATORY to your success. In fact, a good options mentor would not only be guiding you in the technicalities of options trading but mostly importantly, the mindsets that you need to become a successful options trader and guide you in acquiring those mindsets. In fact, a good options mentor or any mentor or coach is also going to be a good life coach because success is holistic and has connections to all other parts of your life. You simply cannot be a successful options trader but a failure in other areas of life.
3. Do not expect "Instant Win". Expect to put in effort in both learning and practise over a good number of years before you even figured out how all these things come together with the rest of your understanding, knowledge and your life in general. Until that moment happens, options trading is always going to feel awkward, something you are simply "trying" to see if it works for you, and keeps throwing nasty surprises your way. Nothing replaces experience when it comes to options trading and without putting in the years, one simply do not develop the confidence to put this into action consistently for many more years to come. As the saying goes, either you Do or you Do Not, there is no "Trying". Just trying is a mindset that is rooted in the instant win culture of today, the fast food culture. People of this culture says this in their heads "I am going to just try and if it do not work like immediately, I am going to conclude it is not for me". And therefore, they found that indeed pretty much nothing work for them in life, including options trading. In fact, this is How Long It Takes To Master Options Trading
4. Have Realistic Expectations. Nothing wins all the time. The name of the game is and always will be the accumulation of more wins than losses over the longer term. Trying to "make it" within a few trades or expecting to find the "holy grail" that never loses is simply impossible. All options strategies follow the ebb and flow of wins and losses. Income strategy or growth strategy, it doesn't matter. All options strategies will have good times and bad times. Understanding the behavior of that ebb and flow over time and coming to acceptance with it and to form realistic expectations and even form realistic trade management plans around such behaviors is key to long term success. Unrealistic expectations result in frustration and quitting even during the normal expected losing cycles of the specific options strategy. Unrealistic expectations also result in taking unneccessary risks and overcommiting to positions. Understand that rather than the explosive dynamite of the quick hare dashing forward towards the goal, success feels more like the steady and consistent pace of the turtle, solid, practical and quiet. My own options mentor used to say a long time ago that "Losing is Exciting, Winning is Boring" and it did take me years to appreciate the wisdom of this saying.
Only 5% of Options Traders Make Money? - Conclusion
I do believe that only 5% of options traders make money and I do see how each of the above ingredients of successful people contributes to success in options trading to the extent that I do not see how anyone, lacking in all or any of these ingredients, can have any form of success in options trading or pretty much any field of endeavor in life. Good news is, every one of these 4 ingredients can be attained by anyone willing to make the change and if you are willing, you can too!