3 Forces Behind Overtrading and How to Control Them
Overtrading is dangerous. It increases the exposure of your account to downturns, leaves you open to trades you haven’t thought through, and greatly increases the cost of commissions. Controlling your overtrading can be difficult as many traders become overzealous as a result of a very poor investment. Rather than “getting it back next time,” the “next time” becomes right now. Traders start to throw money at any trade for a variety of reasons just to get back what they just lost.
No trading plan in sight
The first reason for overtrading is the lack of a trading plan. Pure and simple, some traders just haven’t mapped out a strategy guide. Developing a trading plan is made simpler by the use of a trading plan planner. A trading plan planner will help work out the kinks in your trading plan blueprints while preparing a proper trading strategy. Much of your strategy will depend on your own trading style and a plethora of information from professional traders. With the strategy in place, a trader may be just one step away from consistent profits.
Early losses
Early losses should also be at the top of the list, just barely below a lack of a trading plan. Many traders, even professional traders, do not like to see investments in the red. Day trading and scalping ideologies both promote the idea of very limited drawdowns and complete profits. Thus, day traders are more prone to get caught up in early losses than the long term investor.
Many traders, especially those involved in scalp trading, like to double up on a position when the trade has moved against them. For example, a position at negative 10 pips would send the trader to buy another position with the same dollar amount. In this case, the price would only have to reverse 5 pips in order to break even. This strategy works in theory, though over the long term your account can easily be wiped out.
Trigger happy
Some traders are just trigger happy by nature. Trigger happy traders are those who yearn to take each and every possible trade they see – just because they think they can make it profitable. Scalping is partially responsible for this dangerous trading style. Many traders throw caution to the wayside and place trades that are gut reactions rather than well-thought-out investments.
The important thing to remember is that it’s impossible to make all trades winners, but it’s entirely possible to take only high-odds trades if you know how to identify them. Taking trades you don’t believe in at the expense of losing money simply isn’t worth it.
Learn how to <a href="http://www.tradingeveryday.com/ToolsOfTheTrade.html">master day trading</a> by downloading two of Trading EveryDay’s FREE products: Tools of the Trade eBook and a Trading Plan Planner. Dedicated to helping people become <a href="http://www.tradingeveryday.com/TradingPlan.html">profitable traders</a>, Leroy Rushing, a professional day trader, trading coach, and author, is the CEO of Trading EveryDay, a distinguished provider of educational trading products and services.
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