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How to Avoid Overtrading

Scott Redler
May 19, 2010, 1:48 PM
By: Evan Lazarus  

"Successful traders take responsibility for their actions. They believe their success is due to their well-developed skills and persistent effort, rather than a matter of circumstance, luck or chance."
Michael S. Shopshire, Ph.D. – "The Winning Trader, Developing a Mental Edge for Market Success"

In our most recent T3Live Seminar, a student asked me about how to control overtrading. While I initially went into a lengthy diatribe about technicals, setups and patterns I realized that I had probably complicated the answer to what was a relatively simple question.

As I went home that evening I thought about it some more only to realize that the best and most effective way to stop overtrading is to simply turn off your monitor after initiating or exiting a specific trade. What many traders don’t ever realize (because they probably haven’t thought about it) is that the monitor can be your enemy – not your friend. Most daytraders can get easily consumed with upticks and downticks as they happen on a moment to moment basis. Your monitor can be a complete mirror of your psychological weaknesses.

Overtrading is also the result of improper trade preparation. It’s difficult to overtrade when you begin the day fully prepared. Trade what you see not what you hear or feel during the day. Plan your trades and trade your plan. Prior planning can prevent and severely limit these problems. Overtrading as I see it is the essence of trading frustration. Trying to "catch" a good trade regardless of risk involved is the ultimate in trading suicide. Overtrading will greatly reduce your probability of success because you are trading without a plan.