How over trading develops into a problem.

There are a few things to consider when analyzing how much you are trading.  For me it is volatility and efficiency.  There is nothing I can do about volatility but efficiency is something I look constantly.  If you do not look at efficiency you are always prone to the following problems.

False sense of risk.

Every trade has risks.  Sometimes you get the risk back and sometimes you don’t.  But it is still taking risk. Peoples perception of risk is greatly based on their perception.  For many, this manifests itself only in wins and losses.  The more trades you take the better chance you have to win and lose.  The problem with trading is that winning comes slow and losses come fast.  The situations in which you choose to take risks change but the risks are always the same.

Impossible to learn.

The brain is amazing but it is also limited.  Part of mitigating the risk is the information you receive.  If you are trading so much that you cannot take in that feedback it will eventually catch up with you.  If you do not understand why a trade worked in this situation better or worse than you are missing a huge value of the trade.  Your ability to adjust is what makes it possible make trading a career.  It can never be put on the back burner.

Cost.

When you are winning commissions don’t matter.  If I make $1000 everyday it does not matter if it costs me $100.  But when you are over trading eventually you will lose because you are taking on more risk and not learning. More risks equals more trades which means more commissions.

The market and the individual will determine what is over trading.  Above are the problems that can develop.   When you are trading poorly you probably are trading more as well.  What you see as a good opportunity is skewed by your desire to be profitable.

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  • I think I over trade the most and most egregiously when my plan is the least defined.

    “Your ability to adjust is what makes it possible make trading a career.”
    That is great. It can get lost trying to be systematic with an approach.
    Try to be systematic and dynamically flexible. Computers can do it, kid! Keep up!

    • There are things that change and things that don’t.  Attach processes to those that don’t.

  • AVIONIC178

    Over trading used to be one of my worst habits. I now have rules that have to be followed to enter a trade;
    rules to follow while the trade is in  place;  and stops that must be followed.  I keep a diary of the trading day and review it each evening to see if I followed my plan.  Some of this I have learned reading your blog Thank you.—- not making a living at this yet but think I am on my way

    • You are closer than most if you have a plan, keep working at it.

  • As a natural contrarian trader, there’s another aspect to overtrading that burnt me in the beginning of my career (and still does when I get cocky)–catching a reversal well, exiting with a profit, then, due to overtrading, playing the contrarian again far too soon instead of waiting until the new trend has matured and begun to fail.

    • Being a contrarian is profitable but be one with reason. 

  • I trade an average of 10k shares a day. Sometimes less. I notice my overtrading when I look at my positions tab and I’ve traded like 7k shares of ONE STOCK. More often than not, I’m averaged red or break even in that stock.

    Big problem I’m working on fixing. Nice post.

    • Nothing is more important than losing, when you are losing.  It is a habit that takes a long time to develop and I always try to be aware of why I am winning and losing.  The process for me has at least sped up over time.   Thank you for the comment. 

8 Responses to How over trading develops into a problem.

  1. I think I over trade the most and most egregiously when my plan is the least defined.

    “Your ability to adjust is what makes it possible make trading a career.”
    That is great. It can get lost trying to be systematic with an approach.
    Try to be systematic and dynamically flexible. Computers can do it, kid! Keep up!

  2. AVIONIC178 says:

    Over trading used to be one of my worst habits. I now have rules that have to be followed to enter a trade;
    rules to follow while the trade is in  place;  and stops that must be followed.  I keep a diary of the trading day and review it each evening to see if I followed my plan.  Some of this I have learned reading your blog Thank you.—- not making a living at this yet but think I am on my way

  3. Jeff Carroll says:

    As a natural contrarian trader, there’s another aspect to overtrading that burnt me in the beginning of my career (and still does when I get cocky)–catching a reversal well, exiting with a profit, then, due to overtrading, playing the contrarian again far too soon instead of waiting until the new trend has matured and begun to fail.

  4. Daniel Speer says:

    I trade an average of 10k shares a day. Sometimes less. I notice my overtrading when I look at my positions tab and I’ve traded like 7k shares of ONE STOCK. More often than not, I’m averaged red or break even in that stock.

    Big problem I’m working on fixing. Nice post.

    • Eradke says:

      Nothing is more important than losing, when you are losing.  It is a habit that takes a long time to develop and I always try to be aware of why I am winning and losing.  The process for me has at least sped up over time.   Thank you for the comment. 

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