One of the biggest issues new and experienced traders suffer from is over trading. Over trading is something that can rip you away from your trading plan and wreck havoc on your account. In one of our previous blog posts we spoke about putting out fires before they can turn into a disaster. Over trading is one of those fires we must learn to extinguish.
One of the best ways to stop over trading is to set a time limit. I personally trade from 9:30 am to 12:00 pm everyday. This doesn't include the hour of pre-market research I do every morning. That is about 3.5 hours stuck on the computer. 2.5 of those hours are spent trading when I need to be 100% on my game. Now a few hours might not sound like much but imagine working out for 2.5 hours straight no breaks and you MUST be 100% on your game or you would get hurt. After those few hours you would probably start to get tired and your performance would drop.
Same rules apply to trading you can't expect that you can perform 100% for more then a short period of time. Once this period is extended you end up making mistakes, one of those easy to make mistakes is over trading. Some times less really is more, don't trade once you become mentally exhausted. Set a time limit and follow these rules no matter what!
Many times over trading comes from trying to recoup a loss, this leads to the trader frantically trying to make up lost money and 9 times out of 10 he/she ends up losing even more. Not to mention all the money that is spent on commissions/fees. Just like setting a time limit for trading you need to do so on losses. I personally have a rule that if i lose 3 trades in a row then I'm done for the day.
By now all Gorilla Futures Member better be using the Gorilla futures trading journal to journal ALL there trades. If you are not a member think about becoming one to get access! Go back through your journal and keep a tally of how many trades you lost in a row and what the end results was. This will show you that after x amount of trades I normally have a negative PNL and should quit trading before it gets worse. Once you reach that limit its time to close that charts and be done for the day. This sounds like a very simple tasks but can be extremely difficultly to follow in the heat of the moment. Don't let that voice in your head tell you to keep trading when YOU know its time to stop.
A common mistake all traders make is follow too fast of a time frame. This leads to trying to follow every single movement that price is making. If you would zoom out and look at the bigger picture you see what price is doing overall and not get stuck over trading. Members will know that the majority of our trades are executed on the 4500 tick chart. When price is moving slow or stuck in a range its recommend that all traders move up to a 5 minute chart or a 15 minute chart. This gives you a broader view and will hopefully stop all the over trading. Remember we always trade with the trend!
When it comes to over trading try and extinguish the fire before it can start! Place time limits on how long you will be trading, remember sometimes less is more. Set limits on how many trades in a row resulting in a loss before you need to quit for the day. This can be very hard to execute when it seems like everything is falling apart but it is very important you follow the rules before you end up doing more harm to your account. Lastly move up a time frame or two, this will keep you from over trading and help your bottom line.