| Fewer Trades Can Mean Better Trading | | | | after the closing bell. Bad mornings are especially |
| There is a curious relationship between profitability | | | | destructive because they can trigger a domino effect |
| and the number of trades you make. Often, a trader | | | | that spirals into an entire day of overtrading and |
| will make more money when trading less and suffer | | | | dwindling capital. Apathy creates special danger when |
| the biggest drawdowns when popping in and out of | | | | we overtrade. We can lose so much money in a |
| trades every time the impulse strikes. The latter | | | | short period of time that endorphins kick in and dull |
| scenario is the curse of overtrading. | | | | our growing pain. This removes the fear factor but |
| All market players go through periods of poor | | | | does little to wake up our internal discipline. In fact, |
| performance driven by overtrading. The reason is | | | | many traders wash out when they hit this critical |
| simple -- we feel an overpowering urge to be in the | | | | point, because their senses become too dull to take |
| action, regardless of whether there are good setups | | | | remedial action. |
| to exploit. For most traders, overtrading tends to run | | | | How can you overcome the overtrading monster? |
| in regular cycles. It's normal to increase position size | | | | Start with these seven remedial steps. |
| and frequency when things are going well. But it's | | | | 1. Create a trading diary. Write down every position |
| vital that we watch opportunity costs closely when | | | | you take and why it is worth the risk. Then keep |
| taking on more exposure. We assume larger positions | | | | one eye on your losses at all times. Pull out the diary |
| will yield bigger profits, while the opposite is often | | | | and study every trade taken on your bad days. |
| true. | | | | 2. Review the environment. Choppy markets trigger |
| Markets cycle in and out of good trading | | | | more overtrading than trending markets. Step back |
| opportunities all the time. It starts when the crowd | | | | before the day begins and figure out what type of |
| gets agitated and bids stocks substantially higher or | | | | market you're really trading. This will lead to profound |
| lower. Those are the wild times in which traders can | | | | changes in strategy and discipline. |
| make a lot of money. But that level of intensity is a | | | | 3. Study the charts. Was that a real pattern, or did |
| fleeting emotion on Wall Street. Markets tend to run | | | | you make one up in your head? The cold, hard |
| in place the vast majority of the time, forcing traders | | | | numbers will keep you out of trouble as long as |
| to be selective about their positions. | | | | you're willing to follow their signals. And they're the |
| These dull periods can be particularly destructive | | | | best way to avoid impulsive behavior. |
| when you overtrade. Smaller losses incur more | | | | 4. Talk to your spouse. It's hard to fight body |
| damage to trading accounts over time than deep | | | | chemistry, but dollars and cents need to be |
| stab wounds. In other words, you'll lose more money | | | | separated from thrills and chills. The best reality check |
| from small losses triggered by mediocre positions | | | | I know is to confess my sins to my wife at the end |
| than being on the wrong side of poor earnings, short | | | | of the day. She understands my trading habits better |
| squeezes or unfavorable FDA decisions. This | | | | than I do. |
| unpleasant experience is death by a thousand paper | | | | 5. Don't try to get even. The markets have no ego, |
| cuts. | | | | are not out to get you and don't care about your |
| Sitting on your hands is an excellent way to trade | | | | opinion. The sooner you realize there is no revenge |
| the markets during periods of noise and conflict. It's | | | | factor, the easier it will be to establish the discipline |
| also a strong discipline that works well for traders | | | | required to avoid overtrading. |
| who are addicted to the price action and adrenaline | | | | 6. Walk away. No one says you have to be in the |
| rush it generates each day. Overtrading is a tough | | | | market every single day. Take a few days off or |
| flaw to conquer, because it doesn't disappear with | | | | shut down the computer when you reach a |
| experience. In fact, there are only two possible | | | | predetermined daily loss limit. |
| outcomes when you overtrade. First, you recognize | | | | 7. Study your winners. Look for the common theme |
| the error, review your plan and get back into a | | | | when you bring home the bacon. Most overtrading is |
| disciplined frame of mind. Second, you ignore the | | | | triggered by a fear of missing out on the next good |
| problem and let it escalate until your account blows | | | | trade. This can set off a series of bad positions |
| up. | | | | because you're angry that the market isn't paying |
| The heat of the moment can be overwhelming, | | | | off. |
| inducing poor trading choices we regret right away or | | | | |