How much is too much?

How much is too much?

This is one of those frustrating questions to answer because there are not an evenly distributed assortment of trading opportunities. Some weeks have more obvious trading opportunities than others. This means that in theory you can keep taking the trades as long as they present themselves. However, this can also there are times it is hard to spot when you are overtrading. Some traders try to limit themselves to a certain number of trades per week. Other traders have an equity loss limit for the week, when that is hit they head to the weekend early. The answer that people find to this question is different, but one thing is key, make sure you have a response when you notice that you are overtrading.

How to recognise it?

This it something that is easier to experience than necessarily articulate. There can be a fine line between overtrading and being active in the market. However, here are a few key things that you can recognise:

  1. You have lots of positions open and you are changing your mind on them a lot, e.g long USD in the AM, but change your mind for no real reason in the PM
  2. You are placing trades indiscriminately - you sell at a big support level here, a key option expiry there, you read a blog on the strength of the Yen and open a few small positions.
  3. You are losing equity - This is a good sign that you are overtrading, since the indecision and changing around is hurting your bottom line

How to stop it?

  1. Withdraw from the markets. Take an early weekend, a week off trading. Anything to slow down pulling the trigger
  2. If you are still struggling, then reduce your risk and widen your stops. Consider averaging into positions in order to avoid emotional attachment to any one trade in particular.
  3. Become accountable to a trading partner. Someone who you can share your monthly results with. Do not do this on a public forum as it will not benefit you as much as sharing results privately. If your results are good you'll be pumped up as a 'trading master', if your results are bad you'll be beaten down as a 'trading failure'. Neither are good for your development, so find someone who can help with your accountability.

Over now to our seasoned readership, what tips do you have on stopping overtrading?