Trading Habit #5 – Overtrading
First of all , Happy New Year! to all my fellow traders and trading tribe. May this year bring you peace, prosperity, profit at your doorstep. I have been out of town for New Year celebrations so there has been a delay for this series post…Quick apologies.
I can’t stress this more enough, There is no research which has proven emphatically, that more you trade more you make money!. So Over trading comes from two notable factors. First one is addiction to action of trading and second one is from the hope disguised as belief that the next trade is going to be the biggest one.
The common traits of traders who engage in overtrading are:
- The belief that more you trade the more chances of you making money.
- Poor trade set ups. Which means that you don’t have a strong strategy or set up where you need time to filter and take decisions.
- Addiction to trading. Traders inevitably feel lost without a position on market and without a trade. Overtrading sometimes is due to inherent need to trade
- Leverage, Just because you can get leverage does’t mean you should trade excess. At the end of the day, leveraging also means faster way to lose money.
- Lack of discipline and work ethic. lack of these qualities lead to boredom and boredom makes more traders eager to get into trade.
Interestingly lot of traders themselves do not know whether they are overtrading or not, sometimes when they win they tend to overtrade because they feel wind is behind them. Other times they overtrade because they have string of losses and they want to overcome the same. Some other times they get bored because of lack of trades and they overtrade.
The Solution
There are many ways you can prevent this excessive trading.
After a Big Loss, Take a Break : take a deep breath, relax and analyse before you jump into trading again. Do not rush back after a loss.
Only Trade a Set Number of Stocks per Day : Limit number of trades and stocks you want to play on daily basis or even positional basis. Stick to those rules.
Set Profit and Loss Limits for the Day: Once you hit your targets either on loss or profits. Take a break and call your day off. Do not sit back and try to trade your emotions and euphoria.
Limit the Number of Setups you Trade : limit your trading set ups and strategies. If you have many setups then you will find endless perceived opportunities to play. Few set ups means not necessarily fewer opportunities but more clarity and more high probability trades.
Do not Trade All Day : Once in a while it is OK to stay on sidelines and sip a cup of Tea. Give your head a break!
Make a diary of your trades and see what works for you. It is important to know how many trades you can manage profitably and stick to it. In trading one big loss can wipe away all your capital.
Take care, Again I wish you great year ahead!
All the best
Suresh …
For those who missed earlier post