- 1 What can go wrong trading options?
- 2 SUBJECT: I JUST WIPED OUT MY IQ OPTION ACCOUNT
- 3 Option trading mistakes to avoid while trading
What can go wrong trading options?
Every trader makes fatal option trading mistakes and as a result, wipes out their entire trading account. However, very few share these stories for fear of being ridiculed. I recently received such a story from one brave trader.
Sent via email, the trader simply stated “I JUST WIPED OUT MY IQ OPTION ACCOUNT”. Accompanying the email were two account snapshots which I've posted below.
SUBJECT: I JUST WIPED OUT MY IQ OPTION ACCOUNT
From the two screenshots, the trader had apparently lost $4000 in less than 12 hours. Each trade entered lasted 1 minute. There were 5 consecutive trades with only one winning.
It's sad to watch a trader lose so much money in such a short amount of time. Before, writing this, I shared the snapshots with other traders.
The question many were asking was, “How can a trader lose so much money in such a short amount of time?”
Of course, experienced traders know the reasons simply by looking at the trading history. These are some of the fatal mistakes I'll share with you in this article.
Option trading mistakes to avoid while trading
Investing a huge chunk of your account balance on a single trade
This fatal mistake goes like this. You have a gut feeling that the markets are going in a certain direction. Based on this gut feeling, you're “sure” that you'll make a profitable trade.
So you decide to take a huge risk, investing a huge part of your account in that single trade. The trade loses, and you've lost too much on a single trade.
That's what the trader did. The first trade alone accounts for more than a quarter of his initial account balance.
Now doing the same over and over again will definitely wipe out your trading account. Consider the trader's second trade. It accounts for a third of the remaining account balance. Had the second trade not ended neutral (the price was the same as his trade entry so IQ Option refunded the $1000), he'd have lost a third of his remaining account balance.
This mistake stems from greed. You want to make a lot of money within the shortest amount of time. The only way to safeguard against this is to create a rational money management strategy. Most traders will not risk more than 2% of their account balance on a single trade.
The illusion of finding the holy grail of trading
Many of the traders who wipe out their account balances trade using tips. For them, tips represent the holy grail of trading. Most of these tips are provided by other traders but with a single twist – many are given too late to make a profit.
There is no such thing as a holy grail in trading. Many successful traders will agree. Successful trading is simply about minimizing losses and increasing winning trades.
It's about emotional control, proper money management and knowing when to (or not to) trade. Successful traders also make losses. However, they aren't too great to wipe out their entire accounts.
Fear is the emotion that drives traders to search for hot tips. Even if they have enough information to get into the market and trade profitably, they still fear that they might be wrong. So they'll search out a hot tip from a guru.
When they eventually enter into a position, the markets have probably reversed leading to a losing trade. The sad thing is that the person providing the tip has nothing to lose. You on the other hand are risking your own money. It, therefore, pays to take responsibility by making your own option trading rules and following them through.
Avoid while trading in options: Trading against the trend
Trading against the trend is another fatal option trading mistake that will wipe out your IQ Option account. Trends clearly show you the price direction. So why trade against it? Take a look at the sample trend below:
- The trend is clearly heading up. Essentially, you must place a Higher trade. But notice the trend line showing an uptrend. Just as the price hits it, the trader should have traded higher. But instead chose to trade against the trend. Hoping the markets will reverse some traders will actually trade against the trend like in this case. The last three consecutive trades placed lost his account balance.
- Two exact trades at the same price point: This mistake goes like this. You've placed a call or put at a specific price point. However, the trade goes against you and you lose your investment. You feel that the markets are wrong so you move to prove this by entering that exact same trade. The result? A second loss of the same amount. This type of trade is driven by anger. Always remember that the market doesn't care about your emotional disposition. All it does is provide equal opportunity for all to make money.
If you look at the image above, the trader has two calls while the price clearly shows a downtrend.
Trading very short time frames
One of the attractions of options trading on the IQ Option platform is the shorter time frames. It's an opportunity to make money fast. But there's one shortcoming; you have lesser time to think rationally before you enter into a trading position.
This doesn't mean that 60-second trades won't make you money. In fact, they offer bigger returns than the longer time frames. However, if you can't think rationally before trade entry, there's a high chance that you'll let emotions kick in. This may be the reason that option trading for beginners can be difficult.
This in turn increases the chances of losing a lot of money within a short amount of time. Remember the trader's account snapshot? He accumulated a $4000 loss in five 1 minute trades.
Why do option traders fail?
Surely there are option traders who made millions. Unfortunately, many traders notoriously commit the same option trading mistakes. Today we discuss the most common reasons for failures in financial markets. We hope you will take our advice to heart. You can make money with options. With a little effort, a strategy and consistent execution, you can make good money. Mostly not immediately. That is why it is so important to be prepared for trading.
Have you lost money in options trading on the IQ Option platform? We'd like to hear about the fatal mistakes you made and how you recovered from them in the comments section below.
We recommend that you always start trading with the FREE practice account you can open here –>
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