When it comes to stock and options trading, it's easy to fall into psychological cycles of either being overconfident or overly discouraged. This is counterproductive, and there are things you can do to remain level headed and avoid psychological cycles.
Take a moment to place yourself in a hypothetical situation: You are a trader who is applying a conservative system that's working for you. Maybe you get on a five, or even ten, trade winning streak. You're feeling like you're never going to miss out on another good trade again. You're thinking you are the smartest person in the world, and you feel like you need to be in trades all the time because it's working so well for you. If you start getting overly confident and start veering away from the conservative system that you're applying, then all of a sudden you may find yourself falling into a two or three trade losing streak. All of a sudden all that confidence is gone and you start feeling like you're not going to ever succeed. There is a way to prevent trading based on emotions.
Slow down and hold yourself accountable in between trades. Stop and analyze the previous trades. Learn from them before you move forward.
Think about the current market conditions. Take some time to focus on the foundational knowledge you have. It's not ideal if you don't have all three legs on the trading table. When you become overconfident, you may make mistakes that could have been avoided. You will be more successful if you take time to consider the basic concepts you have learned.
Evaluate your emotions and instincts. If you have a feeling that the trading season you're in is not quite as good as it was when you were making a big winning streak, slow down, maybe even stop trading for a little while. When you become emotional, you start getting into trades for the wrong reasons. It creates a perpetual psychological cycle.
Ask yourself if you’re in a psychological cycle of highs and lows. Hold yourself accountable by slowing down, focusing on the market conditions and your skill sets, and evaluating your emotions. Taking some extra time to hold yourself accountable will potentially help to make you more successful in the long run.