Overtrading is a ‘must avoid’ trading practice, yet it is practiced by a high percentage of traders trading stocks, currency pairs, futures and so on. It is not that much a hard-to-overcome habit; one just needs a sound plan and dedicated implementation. Here are some tips to avoid overtrading:
- Create a trading plan and stick to it. The plan should address what to trade, when to trade and how to trade.
- Create a small list. Rather than trading each and everything, create a small list of fundamentally/technically evaluated stocks and search for opportunities. Keep the list short, and periodically update the list.
- Do some research. Before entering a trade, make sure there is a chance of profitability. Use the most convenient tools/indicators to evaluate each opportunity. In short, never go blind.
- Don’t make your money flow too complex. Keep your risk to low levels, ideally below 2% of your capital, and limit the number of your open positions.
- Be patient and consistent. No market can make you rich overnight and no single trade can make you a successful trader. The rule of thumb is ‘the predator should be more patient than the prey’.
- Evaluate regularly. Ideally at the end of the day evaluate your trades and decisions. Evaluate how well you implemented the plan or answer why you deviated from the plan.