Overtrading

Overtrading is something which every trader has been guilty of at some point in their trading journey. For me, I came to trading with a naivety that I think is prevalent in most new traders. People come with high expectations, usually pumped up by the notion of a ‘get rich quick’ ideology and information they’ve garnered from films like Wolf of Wall Street.

It’s difficult to become accustomed to trading. It is unlike any other career and it goes against everything we are taught from a very young age. In school you’re told to keep your head down and work hard, study long hours and do extra-curriculum work if you want to be the best. In work you’re expected to stay long hours, or if it’s a manual labour job, work until you drop.

Essentially, the more difficult it is, the better your chances for success.

 

This is impossible to replicate in trading. Sure you can study charts, learn about every indicator, have great fundamental knowledge, and know the top fifty trading systems that exist. But beyond that, when you sit down at your computer, you cannot work harder or put in more physical effort to progress.

The reason I overtraded in the beginning is that I thought that was what I should be doing. I needed to catch every move, read every candle correctly and wring as much money from the markets as possible (in reality it was the market wringing money from my account!)

It may surprise you to learn how often you should be entering a trade. I’ll give you a few examples that tally with my experience and knowledge of other traders:

Trading on the 5 minute timeframe, which is what I trade mostly – one or two trades per day maximum. Quite often there is only one setup. There are also lots of days in the year where I have zero trade setups.

Trading on the 1 hour timeframe and over all Forex pairs – 2 or 3 trades per week on average. Sometimes less.

Trading on the 4 hour timeframe and Daily timeframe – one trade per week. A busy week would be three trades entered.

Now reading that is easy and you may think you ‘get it’. But the real world situation is that you will have very long periods of inaction. This goes against that inbuilt notion of ‘work harder, progress faster’. It is something you must get used to if you want to succeed in your trading venture.

You sit and you wait. Let the market come to you. Wait for your setup, your perfect setup that will stand a high chance of success.

I think of it as akin to the frog that eats flies. It does not chase the fly around a field, hopping and flicking its tongue in a desperate attempt to ‘earn’ its meal by working harder and chasing that sucker down. If it did this it would fail. It would expend all of its energy (think trading account) and it would eventually die (blown account). So what does it do instead? It sits and it waits. It takes a long time, sure, but the frog understands that if it waits, eventually a fly (trade setup) will align perfectly and it can strike.

Well, I never thought I would compare trading to the life of a frog, but there you have it!

I hope you’ve had a great trading week!