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Let’s take a look at what overtrading does to your performance, and what you can do about it.
You already know the answer: you simply lose your previous gains, not to mention the frustration that sets in and the desire to trade even more. In short, you become addicted and want to trade even more. We’ll look at solutions later in this article.
Intraday overtrading
Let’s look at some examples of intraday overtrading:
- The morning goes well, we make our gains and then we say to ourselves, I’ve made good money this morning, we’ve reached our target for the day set by our trading plan. Instead of stopping, we say to ourselves, today’s my day, I’m going to break the record this afternoon. Boom, the scenario goes wrong and we let the losses run since we were confident following the morning’s gain, and then we persist in catching up on the morning’s gains but end the day in the red.
- The morning or day goes badly, this time reaching the maximum loss tolerated for the day, and overtrading comes knocking at the door to make you do it again (you do it again at the casino, not in trading!). You rack up losses and increase your risk, because you usually win. You can’t win every day, and some days the market won’t be the way you like it, or it’s the trader who won’t be in good shape. Instead of overtrading, simply take a day off to be in good shape when all the elements are in your favor.
- Overtrading doesn’t just happen as a result of gains or losses, it can simply be the desire to trade, but you can’t stay focused forever, so trade the time that suits you and is defined by your trading plan. Before the hour is not the hour, after the hour is not the hour ;-).
Over-trading in day trading
The 3 previous reasons come up again, so I won’t mention them again.
The vicious circle for overtrading in day trading is that you have positions that you open during the day but which can last several days, and then the problem arises because you want to monitor these positions from the moment you get up in the morning, until you go to bed. If you’re going to be in front of the screen, you might as well take advantage of it to take a little trade here and there, and then you’re living for trading alone, sleeping badly because you’re thinking about the positions that are still open during the night.
Well, since I’m not sleeping and I had one or two positions going badly, I take a look, see if there’s an opportunity on this pair, I take it and I’ll have made a profit on my night… except that I won’t be able to follow the evolution of the trade if I go back to bed… well, that can go a long way since it’s the vicious circle of overtrading, some will find it extreme but others will recognize themselves.
Overtrading in swing trading
We can go back to the intraday examples, but change the time horizon…
There’s a good example as I write this, as the markets are correcting. My swing trading is based on a long only approach and not on short selling. I absolutely want to make money at the end of each month, so I’ll look for buying opportunities at all costs, even if the market is highly volatile with a major downward correction of the bullish regime.
Solutions to combat overtrading
- You have a set loss and gain per day or other depending on your time horizon so respect them, they’re there for that.
- Set yourself fixed working hours and stick to them, set an alarm.
- Follow your trading plan.
- Wait for the right market conditions, whether in intraday, day or swing trading. Be a good hunter, a cheetah, a sniper… in short, trading is a question of probability, trading without it means going down the path that leads to the choice of overtrading.
- Put reminders on your computer to constantly remind you of the rules, because when you’re in overtrading mode, you certainly won’t think about them.
- Discipline: yes, it’s not easy. You’re in intraday mode, you’ve reached your expected gains or tolerated losses, you close everything and only come back tomorrow.
Conclusion on the subject of overtrading
The causes of overtrading are specific to each individual. I’ve cited the most common examples, and the same goes for solutions.
What kind of overtrading do you experience? What remedies do you use?
Tell us in the comments
Good trades, but no overtrading!
Joseph Pergnan
