Overtrading: A Common Mistake

[Soultrader 12]

Overtrading is one of the biggest causes why traders never make it in the financial markets. With a click of a button, a trader can place a trade anytime he wants. It takes tremendous discipline to hold yourself back from overtrading. There are many reasons why one may choose to overtrade.

 

1. Traders without a plan

 

Traders without a plan are my favorite type of traders because they will always lose. Without a plan, how would one know when to take a trade and when not to? Having a trading plan is a necessity. I can not trade if I do not have a plan for the day. I feel lost without one.

 

2. Revenge trading

 

Many new traders become tilted after a loss or a string of losses. This causes them to revenge trade just to break even. This often leads to reckless trading forcing a trade when opportunity is low.

 

3. Chasing the markets

 

Alot of new traders feel more pain when they have missed a move than an actual loss. This is why new traders love to chase the markets. If price has moved away from your projected entry point, let it go. There are plenty of more opportunities. Chasing is one of the worst habits a trader can have. Not only does it offer you low rewards, it also gives you a horrible entry and alters your stop loss placement. Always think about the risk before the profits.

 

When you have a plan to follow, it is easy to filter out bad trades from good one. This keeps you discipline and selective in your trades. I personally do not like trading more than 5 roundtrips a day. Patience is a virtue. There are always good high probability trading opportunities everyday. Just sit tight and don't jump the gun.

 

One way to control a loss is by reducing your size. The problem with gamblers is that they will often double up their stake so they can get even quicker. This usually leads to a greater loss and devastation. Having the strength to grind your way back from a loss is important in trading. Whenever I am having a losing streak, I will trade small and gradually recover. This also gives me the confidence I need after a string of losses.

[Follow The Trend 10]

There are some very good points in this article, and all valid in my opinion.

 

The best traders in the world do not act on human emotion, they are able to take emotion out of their trading and act on facts and figures alone.

 

In the traders world, to show emotion is to show weakness, and any weakness will be exploited by others.

[Soultrader 12]

I think the pyschological aspect of trading is similar to poker. We are all after the players on the tilt. That is also how I like to call it in trading.

 

Emotional trading = tilt

 

One method I use to avoid this is to treat every single hand/trade the same. I do not get emotionally attached to any one trade. In poker lingual, an AK is the same as a 10-J. The only difference is I try to squeeze as much money as I can when the opportunity is there. I hate gambling in poker... especially going all-in with AK against some pocket pair. I have a strategy that I can play that gives me better odds than just trying to catch something.

[modric 10]

I've found myself entering in many jobs from the desire to earn quick. I lost all, because they cheated me. I needed four months to recover. I'm now continuing slow, trying to set a proper prize for my work. I ask for a 10 fold prize for the same qantity of work as I did, but will try to do the work good. And I'm staying in one field...

[Soultrader 12]

I dont believe in quick money. Once you have crafted a skill and become an expert at it... I do believe money does pour. However, one must apply hard work to get to that point. The only quick money is inheritance. Which in my opinion does no help for the person wanting to learn how to make money.

[Follow The Trend 10]

Chasing the quick buck is a recipe for disaster - if it is there, take it with both hands, but dont go chasing it!!

 

Traders dont "chase" the quick buck, they just put themselves in a position to take advantage if it does arrive.

 

A good trader may have his favourite stocks but an expert trader will have no favourites - thats is what makes the expert traders very rich.

 

A LACK OF EMOTION, A COLD CALCULATED APPROACH TO EVERYTHING.

[Wallstreet 10]

The points compiled are very good and practical, though they may not be new. Most of the traders are aware of this facts but get carried away when they give into emotions. Soultrader has very rightly said that there is nothing as quick money, to gain it you have to go though the pain or rather the process.

[ezduzzit 10]

I am not so sure that overtrading is so much the frenzy for quick money as it is the fear of losing out on trades that appear that others are probably making money on successfully. In all endeavors people hate to be the one who gets left behind. It is a natural reaction. However, in trading this creates what I call "impulse" traders. They do not think in probabilities, nor do they practice and excel in a few set-ups or wait patiently for their set-ups.

 

They see what appears to be a big move starting and they are off to the races. As we all know, they had no other reason for taking those trades other than a feeling or seeing the line on the chart moving up without them, etc.

 

As to cold and unemotional traders... there simply is no such animal. The professionals are simply in far better control of the emotions that hit them in the heat of the trade and even the best of them succumb to a little too much exuberance on occasion that snares some of their dandy profits. Don't ever fool yourself into thinking otherwise and try to force yourself to become this totally emotionless trading robot. You will never get to that stage and will always be thinking those other guys must somehow be a little more or less than human.

 

Happy Trading

[Trade Up 10]

I think that many traders (myself included) can easily fall into the over-trading trap out of boredom.

 

If the markets are not moving, or nothing catches my eye, I have found myself jumping into trades I would not normally touch. Traders tend to have a very very low boredom threshhold, which is sometimes difficult to control!!

 

Be careful, boredom can be very expensive.

[Soultrader 12]

I think that many traders (myself included) can easily fall into the over-trading trap out of boredom.

 

If the markets are not moving, or nothing catches my eye, I have found myself jumping into trades I would not normally touch. Traders tend to have a very very low boredom threshhold, which is sometimes difficult to control!!

 

Be careful, boredom can be very expensive.

 

I totally agree. As a intraday trader I sit by my screens all day. Trading can be very boring sometimes especially in a dull market. When my daily goal has not been met, I tend to seek for opportunities where there is none. This forces me to make stupid trades that offer absolutely no reward.

[zarif 10]

Hi all

Just my Tuppence Worth.

Overtrading: I think of this as a twofold affair - The number of trades and also the Stakes ( positions size) employed. Both if not done properly in relation with R/R,Moneymanagement and Timeframe of your trading can spell disaster.

rgds

zarif