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.
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.
We would really appreciate your feedback, if you like, hate, or think we are full of crap. Please leave a comment, a voice mail (312) 725-9121, email info @ traderhabits (dot) com or twitter, stocktwits, youtube and facebook. Subscribe to Traderhabits by email or to newsletter.