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kyle

Problem with overtrading....

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I have been struggling with my own pyschological side in trading. I seem to have a bad habit of overtrading and always trying to chase the markets.

 

I went through alot of articles and resources from several sites and found this to be a newbie trait. I have a question to the more experienced traders here. How did you manage to overcome overtrading? How many trades should I be looking to place as a day trader? Thanks

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I think on average I see 2-3 good trades a day (excluding trendless days where ranges are too small to bother) and I'm a trend-follower. But I'm not a scalper so I can't say for you if you are or not. Scalpers trade more at high volume. My trades can be from 10 mins to an hour depending how trendy the market is. The trait of my trades are the winners stay in position longer than losers. The counter-trend trades (I do little of them) are quick ones since I determine they are scalping trades.

 

If you're overtrading, it may be because your entries are off (this may be from chasing) and your stops might be too tight, getting kicked out too prematurely so you enter. If you hold off from chasing, you'll start to see ideal entries (high reward/low risk trades) don't come that often.

 

You have another psychological weakness is that chasing is caused by greed or envy. You feel the market (and profits) are going without you. Need to curb this emotion. You need to see the downside (risks) from trade. You tend to see the profits but not the losses. Need to consider the losses first. Once you keep this in your head, you will start to trade less because you will be aware of the potential loss from the trade. To consider your loss, you need to set your stop loss order, it's a real loss if you take the trade and consider it gone if you take it. Mental stops are fine if you're an expert but I still make physical stops (I am and will always be a newbie!). Try it.

 

One other problem you may also have it not knowing where the trend is and range is (thus overtrading due to thinking every moment is an opportunity moment). Need to work on your chart reading or study and research the indicators you're using more. Test them out and find if they work in certain conditions and not in others.

 

Need to go back to paper-trading to work on your entries to prevent chasing. When you paper trading chasing, you'll see for youself how unprofitable it is and maybe this will open up your eyes to the problem.

 

Good luck.

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Thank you for the reply torero. I truely enjoy your comments. I do often get stopped out just to see the market move in my favor.

 

From my observation this is what I see: My entries are poor and it conflicts with the fact that I use tight stops. Like you mentioned, I need to work on my entries so I can continue to use tight stops.

 

I often hear of professional traders using more mental stops than physical. I am curious to know what the advantages and disadvantages of physical vs mental stops.

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If you have the discipline in place to consistently use stops, then mental stops are ok; this is why I say only experienced traders use them because they already have the discipline to cut the losses when it's time to the pull the trigger. For people like us, who still require the discipline, physical stops are a must. When we will the mental stops the slack from time to time. But those are the times we lose more than we like, bigger hole to get out of.

 

The best way to find the stops is to use pivots (higher highs higher lows and lower highs lower lows) I mentioned in other threads I posted today. I usually place my stops just below the previous low pivot for longs and previous high pivot for shorts. Research this for yourself and see if it fits into your plan. If you have tight stops, move to a timeframe where the low and pivots are closer together to your range of stops. But keep in mind, the lower the timeframe, the more difficult it will be, you have to keep higher timeframe in mind on direction.

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Hi Torero,

 

Read your post and something popped out in my mind. I was always curious to know the exact stop placements traders use when using pivots. How many ticks away do you usually place your stops above/below a pivot? The markets do have a tendency to test the highs or lows and even violate it by a few ticks.

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Hi Torero,

 

Read your post and something popped out in my mind. I was always curious to know the exact stop placements traders use when using pivots. How many ticks away do you usually place your stops above/below a pivot? The markets do have a tendency to test the highs or lows and even violate it by a few ticks.

 

This is an example of my trade last Friday. I chose 600 because the tendency for prices to fluctuate between pivot high and low is 2-4 points. So my stops are usually 1.5-2.5 pt.

 

newbie-trader-ER2Z06-600-tick-stop-loss-placement.gif

 

I took my short at 758.1 and didn't exit until 754.1 where there was resistance 1 pt away. I move stops until the target is hit or my last stop gets hit.

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Thanks Torero. Alot more clear with the chart you posted. Your entry point would be the test of the high (double top failure)?

 

I have also found the 600 tick chart to work fairly well on the ER2. Thanks for the tip on this... also pretty looking charts you have there.

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The entry would be the break of the low of the previous bar on the second top with the stop at the highest of the 2 tops.

 

Yes, since I'm a big believer that charts say it all or charts don't lie, what better way to talk about markets than explaining using charts? I spend alot of time drawing charts and making note and saving them for myself to study later on. Best way to learn about your skills levels on how you view the market at that moment in time.

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Thanks Torero. I also like to keep charts and videos on my trading to reflect and seek improvement. If you dont mind me asking, is the text and lines drawn on the charts part of the platform or do you use a third party software?

 

Also, I remember you mentioning in the chat room about your exit strategies. From my understanding you like to exit a full position instead of scaling out? Are you able to sit threw the pullbacks/retracements this way? Thanks

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Yes, charting tools are from TS (check View->Toolbars->Drawing). Yes I take positions in 1 swoop and exit in one swoop. It's still tough sometimes to hold oneself back from not exiting when watching the retracements. But I've come to realize 2 things: 1) money is made and then some from sitting on winners to cover the many losers. 2) these retracements indicate that the trend is healthy, giving new players a chance to come in and push the trend further. 3) Many times I realize I always take my profits too early no matter how much I think the market has gone already; this is a bias I'm still trying to get rid of.

 

Of course psychologically it's tough to watch prices go against your position but a couple of things I did that helped me overcome them. Once the trade was in my favor, I put the stop at breakeven. Once I had the position risk-free, it became easier to let the position go its way and only to move the stop to add more profits. The other thing I overcame was the initial stop loss; I had to accept that will be the loss I personally accept already, no matter the outcome of the trade. Knowing this makes me more careful about taking a position and avoid overtrading. So if it goes against me, so be it. This comes from confidence but confidence from letting go is from knowing your strategy will work and that takes lots of practice, time and patience to see for yourself that the strategy work (backtesting and papertrading). I took one year to papertrade before I was confident enough to trade it and accept the loss on each trade I make. From this period I improved my stats that 1 out of 2 trade is a loser so that fact made me comfortable about taking the loss because I know the trades I take are carefully selected for the high probability trades.

 

Having confidence in your system is the first hurdle. The last hurdle is patience to let the winner take its course. That is why exiting takes a long time to master because patience is the last trade virtue a trader learns and masters. Just IMHO.

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Hey Kyle

Here's a couple ideas to cure the overtrading. It cost me untold thousands to learn these simple things :-)

1. Look at your account statement, and see how much in commissions you are paying....*don't feed the broker*!...starve 'em!

2. Like Torero says...there are truly only 2 or 3 "trades of the day", ...and they usually happen in the first two hours. I found that my worst days of overtrading happened when I got upside down in the morning, lets say 400 bucks, and commited to spending all day if necessary to get "even" or up. Big mistake. More often than not, I'd go deeper...maybe x2....battle my way back flat with a zillion trades, exhausted and with a $400 tab for the day to the broker anyway. "Exciting day", yeah..but a waste of time...I coulda taken my hit and turned of the computer and gone and did the real world, you know? The time after the first two hours and the last hour and a half, I call "The Swamp" and have trained myself not to go there...it's generally a twitchy, sticky, violent and unpredictable place....sometimes there are nice moves....but if you miss them...so what? The percentages show mid day to be the chop-chop zone....bad odds as a rule. So now I have a very strict rule of 2 or three trades a day, tops. I have my daily target for the morning..I use 1-3 trades to achieve it...I will happily let it run beyond my daily goal, but I won't give it up on a deeper retracement or more trades. i can't emphasise enuf how many days I 've made say 800 bucks on my first trade or two...and said to myself,"ooh...that was slick..lets see if we can do it again"...and ended up losing half...then all...then going under...yadayadayada...OR..after a 30 trade day....that night saying, "if I'd only held onto my first trade, and quit after that....so..now I physically turn off the computer upon hitting target. I likewise turn off the computer if it's past 2 hrs...if I miss 3 in a row, or lose the equivalent of my daily target. "Him who fight and run away, live to fight another day" ;-)

3. Forget about scalping...you've gotta be really really good...aware and fast and have the reflexes of a teenager! Brokers love scalpers, but I've watched over 100 traders trade, and only a few were really succesful at scalping. Kinda zaps your nervous system too. Become familiar with the Average True Range (daily) of the vehicle you are trading..know your support and resistance levels....your fib levels and extensions...and you will develop an awareness of where the things' likely to move during the morning. Ask questions...how much on avg. does this puppy run? Retrace? Find an intraday indicator that follows the big move(s) of the morning...all this will help you develop a plan outside of trading hours. Trying to plan on the fly leads to overtrading. Much easier to follow your instructions that you made when the market was closed, right? "Plan your trade, trade your plan" Ex: I trade the Q's...right now they average almost $.60 range a day...and will often move a buck and a half intraday within that range. i just want $.20 of that swing. More is gravy...but I get that 20 cents..I protect it..and my finger is poised to shut down the computer....'cause I've learned not to be greedy, not to try and make up for bad trades..and 20 cents a day adds up nicely overtime. I routinely miss 40-75 cent moves...but I've learned to say, "so what?" It's gonna happen again tomorrow, and the next day..etc., and I'll work on holding longer.

4. Cut your size in half, 2/3 even.. loosen your stops a little, forget about dollars, money.. and think points. Try and rack up a consistent number of points every day. In the long run, this will help your headset as your account grows and your size gets larger and dollar amounts change. With a wider stop...you can develop a "zone" that you have agreed to yourself that you are willing to enter, and you won't feel like you are chasing the issue.

5. Resist the urge to trade counter-trend. It's a biggie. Better to bail on the bounce...and wait 5 minutes or 25 for the retracement...which gives you relaxed time to wait for the setup/good re-entry....think "stalking". Or let go (lock-in) half your position...ride out the retracement and re-enter with your fresh ammo.

6. Keep hard physical stops until you get some really high percentage trading under your belt. If your size is small and your stop is fat..it's a tremendous psycholgical relief, and you can really focus on price action without abundant worry/anxiety. Once you learn the price action, you will learn to see when you are wrong, and there is no reason to risk your whole stop. I use mental stops because I have absolutely zero issue with taking a loss quickly...and again...this simple ability cost many thousands :-) ...also....my broker charges 40 bucks for the luxury of having a physical stop in place...and thats 4x my normal trade fee...so I only use it when I go to the bathroom...make a cup of coffee...or there's a lightning storm coming or some worry about internet connectivity.

7.. Lastly...play this game until you get 70% accuracy.

It was a tremendous eyeopener for me...there are many valuable trading parallels.

Camper-Strike, Counter-Strike AWP free flash game. counter strike sniper game. AWP Maps. By BarraxWorld

 

I have an addictive personality around everything I do...always have and always will...you have to be honest with yourself about if you have the innate personality traits to trade effectively and consistantly...and Discipline is Numero Uno. (Ichiban??) Overtrading was my biggest stumbling block, and steering away from it was like turning a freighter on the open seas. But once I learned to trade to live vs. live to trade...and I stowed the AK-47, and got into sniper mode "1 shot 1 kill"...everyting be fine :-)

Again...try to trade just the first 1.5-2hrs..and turn off the computer...take satisfaction that you are done for the day before most people are thru their first coffee break! Stay all day...odds are you'll overtrade and your eyesight will worsen.

Hope this ramble helps!

 

...and James...r.e stops..I usually check the pivot tests for the last 10 days to see how far on average or the most the issue ran by the pivot before reversing, and I'm a tick above that, fwiw

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Excellent post Terry. One shot One kill... ahh now thats my style of trading as well :) I find it fascinating sometimes that many traders share similar weaknesses and we are all trying to find some method to overcome it.

 

Overtrading was definitely one of my major weaknesses as a starting trader. But I was able to cure it just by switching mindsets and working on a handful of high probability trades. 2-3 trades a day can make you a good living instead of the 20 roundtrips a day trying to grind a few points here and there.

 

The first 1-2 trades are usually my most important ones. If they are winners, I can usually meet my daily goal in the opening 90 minutes and call it a day. If they turn out losers, I end up taking 8-10 trades trying to come out plus. What a waste of time! I hate trading the entire day glued to my chair and screens. Like Terry said.... one shot one kill. And usually these opportunities lie in the opening 15 minutes.

 

Best of trading,

 

Soultrader

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Hey Kyle

Here's a couple ideas to cure the overtrading. It cost me untold thousands to learn these simple things :-)

1. Look at your account statement, and see how much in commissions you are paying....*don't feed the broker*!...starve 'em!

2. Like Torero says...there are truly only 2 or 3 "trades of the day", ...and they usually happen in the first two hours. I found that my worst days of overtrading happened when I got upside down in the morning, lets say 400 bucks, and commited to spending all day if necessary to get "even" or up. Big mistake. More often than not, I'd go deeper...maybe x2....battle my way back flat with a zillion trades, exhausted and with a $400 tab for the day to the broker anyway. "Exciting day", yeah..but a waste of time...I coulda taken my hit and turned of the computer and gone and did the real world, you know? The time after the first two hours and the last hour and a half, I call "The Swamp" and have trained myself not to go there...it's generally a twitchy, sticky, violent and unpredictable place....sometimes there are nice moves....but if you miss them...so what? The percentages show mid day to be the chop-chop zone....bad odds as a rule. So now I have a very strict rule of 2 or three trades a day, tops. I have my daily target for the morning..I use 1-3 trades to achieve it...I will happily let it run beyond my daily goal, but I won't give it up on a deeper retracement or more trades. i can't emphasise enuf how many days I 've made say 800 bucks on my first trade or two...and said to myself,"ooh...that was slick..lets see if we can do it again"...and ended up losing half...then all...then going under...yadayadayada...OR..after a 30 trade day....that night saying, "if I'd only held onto my first trade, and quit after that....so..now I physically turn off the computer upon hitting target. I likewise turn off the computer if it's past 2 hrs...if I miss 3 in a row, or lose the equivalent of my daily target. "Him who fight and run away, live to fight another day" ;-)

3. Forget about scalping...you've gotta be really really good...aware and fast and have the reflexes of a teenager! Brokers love scalpers, but I've watched over 100 traders trade, and only a few were really succesful at scalping. Kinda zaps your nervous system too. Become familiar with the Average True Range (daily) of the vehicle you are trading..know your support and resistance levels....your fib levels and extensions...and you will develop an awareness of where the things' likely to move during the morning. Ask questions...how much on avg. does this puppy run? Retrace? Find an intraday indicator that follows the big move(s) of the morning...all this will help you develop a plan outside of trading hours. Trying to plan on the fly leads to overtrading. Much easier to follow your instructions that you made when the market was closed, right? "Plan your trade, trade your plan" Ex: I trade the Q's...right now they average almost $.60 range a day...and will often move a buck and a half intraday within that range. i just want $.20 of that swing. More is gravy...but I get that 20 cents..I protect it..and my finger is poised to shut down the computer....'cause I've learned not to be greedy, not to try and make up for bad trades..and 20 cents a day adds up nicely overtime. I routinely miss 40-75 cent moves...but I've learned to say, "so what?" It's gonna happen again tomorrow, and the next day..etc., and I'll work on holding longer.

4. Cut your size in half, 2/3 even.. loosen your stops a little, forget about dollars, money.. and think points. Try and rack up a consistent number of points every day. In the long run, this will help your headset as your account grows and your size gets larger and dollar amounts change. With a wider stop...you can develop a "zone" that you have agreed to yourself that you are willing to enter, and you won't feel like you are chasing the issue.

5. Resist the urge to trade counter-trend. It's a biggie. Better to bail on the bounce...and wait 5 minutes or 25 for the retracement...which gives you relaxed time to wait for the setup/good re-entry....think "stalking". Or let go (lock-in) half your position...ride out the retracement and re-enter with your fresh ammo.

6. Keep hard physical stops until you get some really high percentage trading under your belt. If your size is small and your stop is fat..it's a tremendous psycholgical relief, and you can really focus on price action without abundant worry/anxiety. Once you learn the price action, you will learn to see when you are wrong, and there is no reason to risk your whole stop. I use mental stops because I have absolutely zero issue with taking a loss quickly...and again...this simple ability cost many thousands :-) ...also....my broker charges 40 bucks for the luxury of having a physical stop in place...and thats 4x my normal trade fee...so I only use it when I go to the bathroom...make a cup of coffee...or there's a lightning storm coming or some worry about internet connectivity.

7.. Lastly...play this game until you get 70% accuracy.

It was a tremendous eyeopener for me...there are many valuable trading parallels.

Camper-Strike, Counter-Strike AWP free flash game. counter strike sniper game. AWP Maps. By BarraxWorld

 

I have an addictive personality around everything I do...always have and always will...you have to be honest with yourself about if you have the innate personality traits to trade effectively and consistantly...and Discipline is Numero Uno. (Ichiban??) Overtrading was my biggest stumbling block, and steering away from it was like turning a freighter on the open seas. But once I learned to trade to live vs. live to trade...and I stowed the AK-47, and got into sniper mode "1 shot 1 kill"...everyting be fine :-)

Again...try to trade just the first 1.5-2hrs..and turn off the computer...take satisfaction that you are done for the day before most people are thru their first coffee break! Stay all day...odds are you'll overtrade and your eyesight will worsen.

Hope this ramble helps!

 

...and James...r.e stops..I usually check the pivot tests for the last 10 days to see how far on average or the most the issue ran by the pivot before reversing, and I'm a tick above that, fwiw

 

 

RIGHT ON, TERRY!

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The game is great ... fantastic ... and trying to beat 70% reminds you what you're focussing on (not just the highest score).

 

The best bit is it gives you the adrenalin buzz you are craving that might cause you to overtrade. :)

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