4 Tips on Avoiding Overtrading

Overtrading is a problem that many individual traders suffer from on a daily basis. These individuals place more trades than they should and it generally leads to negative returns. If you are afraid that you are overtrading, here are a few tips to keep in mind so that you can stop doing it.

1. Do Not Trade Just for the Sake of Trading

One of the biggest problems that people run into is that they feel like they always have to be doing something in order to be successful. No one likes to sit around and do nothing when it comes to earning money. When you are relying on your trading efforts to bring in money, you feel like you need to be trading at all times in order to make a profit. The only problem with this is that it often leads you to making bad decisions and taking trades that you shouldn't take. Do not ever trade just for the sake of trading. Trading should be based on many factors, but none of them involve frequency.

2. Ignore Emotion

Another problem that many people have is that they rely on their emotional reactions to make a trade. If you allow your emotions to tell you what to do, you will generally be taking on many more trades than you should. Emotional trading will have you take action in the market because something is happening and you feel you have to get involved. Even if there is not necessarily a good trading opportunity presenting itself, you might feel like you should get into the market anyway. If you want to be successful, you need to ignore your emotions and rely on your other indicators to get the job done.

3. Use a System

In order to be successful, you need to use a trading system that governs your actions. You should never just trade at random intervals. Every trade that you take should be based on the system that you have in place. If a trading opportunity does not meet the conditions that are required by your trading system, you should avoid taking the trade. Establish a system so that everything is cut and dry and you will not have to do any guessing.

4. Daily Limit

If you are in the habit of trading frequently, it may be to your advantage to implement a daily trading limit to work with. With this type of strategy, you will either put a maximum number of trades on yourself per day, or set a profit target to shoot for. In addition, you should also set a maximum amount of money that you can lose in a day. Once you reach the maximum number of trades for the day, you need to walk away. The same thing applies if you reach your daily profit or loss goals. This will prevent you from trading to frequently throughout the day and taking unnecessary trades.

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