A Rookie Trader's Guide To 'Over Trading' And How To Avoid It
If you are rookie trader, then over trading is probably already on your daily list of tasks.
Respecting trading rules is like going on a diet. It means you need to stick to the rules if you want to lose the extra weight. Same goes with trading; Successful traders only go for highs odds, high quality set-ups not high risk and volume trading.
There is an overwhelming number of beginner traders that find themselves over trading, it is truly a “newbie disease” and has become the leading demon of a lot of traders. It is easy to understand why, the endless and ongoing possibilities of day trading, the potential to make a lot of money in a very short period of time. Over trading is one of the most common mistake a trader can make, they think that the more they trade the more chances they have of making more money.
This is simply incorrect.
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Trading is a mélange of patience, knowledge and discipline. It is about knowing how to identify high quality trades, regardless of whether you are a scalper, a gap trader, a trend trader and regardless of the time frame you are trading on.
How to self diagnose the signs of over trading:
Are you making money at the beginning of the trading session and giving it all back by the end of day? Are you repeatedly increasing your risk per day to continue trading? Are you taking someone else’s trades? Are you jumping in trades just because they are all over the news or on TV? With the age of social media, are you “following” too many traders and trying to carbon copy their action, not being aware of their trading system or performance? Are you trading under stress of having to make money to pay this month’s bills? Are you taking some extra trades after some big losses to try to make it all back? Are you initiating trades that do not fit your plan nor meet your predetermined criteria? Behavioral psychologists involved with trading call this “compulsive behavior,” and it is considered a serious weakness, regardless of the occupation.
But, no need to worry.
If you have answered “yes” to any or all of the questions above, you are suffering from over trading.
And, if you are serious about trading for a living or just to increase wealth, there is good news for you.
Overtrading has a cure: it is called “journaling.” A dose a day after each trading session is all you need.
At the end of the trading day, every trader must evaluate their trading. The process of journaling will provide you a blueprint of your trading behavior. Rookie traders will soon notice which strategies work for and which do not, what are the best trading times, what the most profitable set-up is and the overall behavior. A trading journal will help rookie traders always monitor and reflect on their trading actions.
There are no side effects, but if not taken daily, a rookie trader’s account will result in continued losses.
Good traders only have two or three amazing trades a week where they meet and most often exceed their weekly goal, followed by some break even days or even losing trades. But what differentiates a good trader from a newbie is how the bad the day’s trades really are. It all comes down to knowing how to manage the trading day, especially the losing days. The loser days should never erase the winners.
Having the discipline to correct mistakes will transform a rookie into a good trader and help them survive as a trader. Knowing when to trade and when to step aside and wait patiently for the next market move is key.
Recall the saying: “slow and Steady wins the race.” Trading is no different. Over trading is toxic and bad for a trader and their account.
Less is more when it comes to trading.
(c) 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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A Rookie Trader's Guide To 'Over Trading' And How To Avoid It
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