Thursday, April 22, 2010

Over Traders Anonymous

I have been seeing a lot of this lately from some traders. OVER TRADING.

Over trading is the single most damaging thing to an account. the commissions alone will eventually slowly eat away at capital and that's not even taking into consideration the mental and emotional drain you will go thru. Your soul goes into a dark place when you over trade and get poor results. Sometimes it made me even angry and i used to lash out at others.

It took me years to figure out that trading more ironically meant more losses, NOT more profits. The less you do, the better. I average about 2-3 trades per day normally. Any more than that and you are opening up the potential to getting emotional. It's a fact, the more you trade, the more emotional you will be get and the less rational you will be get. You will to likely scalp too much and you end up going short and long and short and long. Your head will be all over the place. Like a vegas gambler looking for one more fix.


here's an awesome tip to avoid emotional trading or over trading: Make sure every trade have a story behind it. Give each trade a personality and a reason why you are in it. Write down in a quick email to yourself on why you like this trade. By the time you are done writing the email to yourself and you are getting ready to send it out, you have might already realized that this trade was an emotional reaction and there was nothing there to begin with. So before each trade, write an a email to yourself describing what you like about this trade and i guarantee you will realize that many of your trades are just emotionally driven visuals. At the end of the day, you can look back at those emails and see what you were thinking and what you were doing right or wrong.

Or here's another great tip:

i highly recommend you do something i call: "SET IT AND FORGET IT". Yup, just like the infomercial!! :-)

Find a good setup(mine or your own) and put on the trade with smaller size than normal, set the stop and walk away completely, leave the room. come back towards the close and decide if you wanna sell it, or hold it longer. Do that for a few days and i have feeling you'll see major improvements. For starters, i am sure it will help you get your discipline back and make you RELAX. Need to learn to take a deep breadth and relax guys....it's only a trade. It's not life or death. Chill out a little and have fun. Don't be so intense and "touchy feely" with those trades.....RELAX...........


If you have any problems with this VERY important issue, please email me. OverTrading is extremely dangerous, so respect it as a dark force working against you.

5 comments:

Is It Possible said...

Totally agree with this as I have done it.... no no wait, I still do it at times....

Issue: I do select/scan couple of setups every evening/night with some showing very promising signs and set alerts. The next day, market starts its game. Some alerts pop up and I decide to take 2 trades. By mid 1 trade is doing well but the other was a trap, so get out. By this time already another 4 alerts have passed by, hence for those stocks the train has left the station. Now again 2 more alerts pop, I get in both. By end of the day I have 3 positions, 1 doing awesome and 2 barely positive and kinda moving close to breakeven (bull trap again!!!) 2nd day take small loss on those 2 positions and by now I am frustrated....

Now the issue is not that the setups are bad, I have history/story/(watever you wanna call it) behind the trade but it just didnt work. But the bad part is it leaves me frustrated and then I start doing over trading....

the only way I have found most useful in this scenario is to take a break after 3 or 4 bad trades consecutively....

read somewhere "Dont worry, markets are like Casino, it will be open tomorrow and will present better opportunities so go home and come back later..."

any better suggestions!!!

Stewie said...

i suggest you narrow down your watchlist. you have maybe have too many ideas. focus on the best 2-3 ideas and don;t be a in rush to buy so soon after the open. Wait and see which ones prove themselves after the first 30-60 minutes. Also, if you 1 stock that is doing awesome and 1-2 that just flat or smallish losses: what's wrong with that? Sounds like you should be coming out ahead. Am i missing something or are you looking to score a home run on all your trades?

Is It Possible said...

Not trying to hit home run on all trades but when 3 or 5 trades consecutively go bad, it does take a emotional toll along with those small losses (which add up)...

But as you suggested, I am trying to reduce the watchlist and yes waiting those 1st 30-60 mins very crucial....

Thx :)

Stewie said...

gotcha. Ya, i definitely thin it's best to allow the trade setup to 'mature' a little and allow the craziness surrounding the open to dissipate.

BCNTrader said...

I agree. First trades and unsurprisingly the worst ones are "life or death", you fix your eyes on the monitor and everything else is lost. To avoid that, when I get nervous, I play Wii while doing a trade, other times I set a stop, set the chart at fullscreen and go away from the computer.

The worst thing is that I'm under the PDT rule. My ideal setup is only 1 or 2 trades per day and another swing as much, as you say, is not good to overtrade. Sometimes I just needed to hold overnight some stupid plays to not waste 1 daytrade because the PDT, as I'm not in confidence with the price movement I put a 7% stop loss and eventually I'm right, not confidence means loss. This rule makes me worst trader. Why I say that? because overtrade is bad but not to be free to do at last 1 daytrade per day is the worst.

(Sorry if some grammar errors I'm not english lang. native)

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