Do You Suffer From Over Trading?
Every trader has one primary goal; to trade
Every trader has one primary goal; to trade. It is natural for a trader to be excited and enthusiastic about the prospects of trading his account. After all, it's our job to trade. But one of the toughest lessons to learn in trading is when to trade and when not to trade. On certain days, even the poorest set up looks like a good trades and the trader is tempted to initiate a shaky trade.Over trading is a problem that many novice traders suffer. All setups are not created equal, and taking every set up that looks even marginally good can result in excessive losses. Of course, your futures broker will love you because you will pile up commissions at a record pace. As traders though, our job is to find high probability trades and ignore low probability trades. This skill is learned through study, experience, and proper mentoring.
Initiating a trade is done with the expectation of making money. It is the very reason we engage in trading activity. But one emotion, greed, can lead us to take temporary leave of our senses (or encounter temporary insanity, as it were) and begin trading at an excessive rate. Generally speaking, this behavior is called chasing the market. When you find yourself in this state, especially at the beginning of your career, it's best to simply shut the computer off and study the trades you made throughout the course of the day. You'll find that you entered trades with poor setups in the hopes the trade might go your way. More accurately, you entered the trade hoping you would get lucky and make some money.
And that's the problem.
The desire to make lots of money and trading do not necessarily go hand-in-hand. When a novice trader is over trading, he or she is generally not giving proper consideration to the dynamics of the setup presented to them. In essence, they enter trades and hope it works out. That's no way to trade, and experience will eventually teach them that you cannot trade on hold. Trading is a skilled profession, and properly evaluating every trade set up is the hallmark of a professional trader, of a profitable trader, too.
I trade using a scalping style which is a process where I take small chunks of profit in an ongoing trend, either an upward trend or a downward trend. Since I trade in this style, I make more trades than a trader who employs a buy and hold technique. On an average day, I may make 5 to 8 trades. There may be 25 potential trading opportunities that I evaluate, and approximately 20 of those opportunities I dismiss as low probability trades. This is the process that novice traders struggle mightily with. Without proper study and training, novice traders drive themselves nearly crazy in an attempt to find the sweet spot in profitable trading. Yet there are telltale signs that indicate trades that have a high probability of success and learning to spot those anomalies is the hallmark of an experienced trader.
Experienced traders don't chase the market. They let the market come to them, and they never over trade their account. My mentor once told me, You never lose money on a trade you don't take. That adage has stuck with me for many years, and if I am not confident in the probability of a trade I will generally pass on the trade rather than enter a trade and hope for the best. Profitable trading is not built on hope; it is the process of evaluating the probability of success in a given trading situation. You don't guess or hope a trade comes to fruition.
In summary, if you find yourself consistently making more than 10 trades a day you are over trading your account. Granted, there may be the day when 10 bona fide trading opportunities occur, but those days are far and few between. Learn to evaluate your trades carefully and weed out the low probability trades in favor of only high probability trades. Your trading success and profitability will increase immeasurably.
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