Overtrading is among one of the main reasons why traders fail and only a few know how they could stop this bad and expensive habit.
Overtrading will make you emotionally vulnerable, pay more fees…
It also requires additional time and resources while usually, it is unnecessary and brings high-risk exposure to the market.
In this article, we take a look at the most common problems many traders face, how they could eliminate a need to trade more, and how to become a better trader by trading less.
Set orders and forget
Watching trades tick for tick, moving to lower time frames once in a trade, looking for outside confirmation (social media, forums, news sites that have usually nothing to do with your system), constantly moving around stop loss and profit orders, adding to trades and/or partially closing trades (usually without a plan) will do nothing but ruin your day.
Once you open a trade, set your stop loss and take profit orders and let price do what it will do anyways and wait for the price to either reach your take profit or stop-loss order.
That’s only one trade from the thousands of trades you will have in your trading career.
The outcome may be important for the current moment but in general, as long as you are following the plan and executing trades by the rules of your plan, the outcome of that particular trade is not important at all.
Build a trading plan and stick to it
The main reason why traders can’t stop this habit is that they don’t trust their system, they only think about the money involved, they haven’t validated their edge or don’t have any trading rules at all.
You can have the best ship in the world, you can have the best plane in the world but if the captain doesn’t have a plan, you will circle around until you run out of fuel.
By failing to plan you are planning to fail.
No matter how good your plan or strategy is, you need one.
Once you take a certain number of trades using your strategy, you can sit down and analyse those trades and then based on the results you get, you can improve the weak parts and test it again until you make the one that gives you profitable results.
Having a plan and by following it, you will rarely overtrade because you will be waiting for a couple of confirmation that doesn’t happen all the time.
You will have to wait a certain period for them to form in order to take a trade.
Make sure to check this article on How to build a trading plan.
Focus on higher time frames
If you trade on the 5-minute time frame, you will have 12 candles every hour which is 288 candlesticks a day.
On the other side, if you trade on the H4 time frame, you will have 6 candlesticks a day.
Which time frame will give you more confirmations?
The 5-minute chart will have way more confirmations and potential setups but how accurate those confirmations are as they were built only in 5-minute time window by less than 1% of market participants?
Do you think the decision of less than 1% of market participants can actually change the overall direction or can it cause any major change even in intraday price action?
By focusing on higher time frames you will be waiting for confirmations that will be made up of bigger % of market participants which instantly gives the weight those confirmations when they happen.
Waiting confirmation on H4 doesn’t require you too much time.
You simply set alarm 5-min before candlestick close if you are waiting for the setup confirmation.
If it doesn’t happen, you wait for the next one.
Doing this, you will be entering less trades, paying less fees to the broker/exchange and having much more time to work on your other businesses.
Work on other streams of income
This is actually suggested to all of you because rich man will never have one stream of income.
Having more income streams will make your trading less emotional which is a huge advantage and you can focus on the process and improvements.
When you have bad week or month you can allow yourself a break because you have other income streams that are making you profit.
The trading doesn’t require your whole day.
The funny thing is that you do not need more than 2 hours a day.
Even that is too much.
At the end of the week take time and analyze potential setups for the week ahead.
Outline potential setups and then throughout the week just monitor these setups and wait for entry confirmation.
For that you do not have to be looking at desktop all the time, you can simple set alerts and execute a trade once you get a notification.
In the meantime, you can work on other income streams, go to the gym, spend the time with your family.
By doing this you will shift yourself out of trading and let other activities fulfill your daily schedule.
Have a journal
When you write down all your trades and you will get the most important data that one trade can have.
Journal has to contain as much data as possible.
What was the reason for entry, what was the reason for exit, what was the emotion you felt?
The journal others propose is containing nothing more than a couple of price points.
The real value comes from analyzing reasons you took a trade, emotions you felt and so on.
By forcing you to describe the reasons you are taking the trade, you will be overtrading less more.
Make sure to check out this article to find out more about What is trading journal?
We hope you enjoyed reading our article and that you gained a lot of new valuable pieces of information that will serve you in the future.
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Milos is an independent trader, with a background in journalism and publishing. Nomadic by nature, he’s lived in four different countries this decade. He’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives. Milos got into Bitcoin while completing his degree and hasn’t looked back since, writing about anything crypto-related. He is the co-founder of the Cryptoaims and he has a strong passion to educate people about this revolutionary technology.