Recently I exaggerated. Overtrading carried me; as a result I missed the moment in which the following transactions a little changed. However, a turnover generated by me much changed, as well as unnecessary costs.
Overtrading rarely happens to me. I got rid of it quite effectively already a long time ago. But from time to time it appears. It is important to very quickly realize it. Recently, it took me a couple of sessions. After which the generated turnover in the session again dropped by 50-70%.
What is overtrading
At the beginning I will explain what is overtrading in my definition. Overtrading is carrying out a considerable amount of transactions, which either:
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result out of boredom
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are carried out without a specific plan
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are carried out let us say without consciousness
In my case in the recent time the 3 type of overtrading occurred. I carried out a gigantic number of scalping transactions, which seemed to me that have a positive effect on a result of the given day. They didn’t profit generally speaking or generated the loss (above all because of filling the commission, rather than because of loss on the move).
From the level of average turnover 40-100k shares per day, it got suddenly 400-500k shares per day. It’s much more, in spite of the fact that on the market nothing happened.
Where from such a mistake? How I let go into this overtrading corner. I broke one of my rules in scalping. I carried out transactions when a tape reading motive disappeared and when I carried out transactions in hours which statistically are characterized by the lowest effectiveness.
Describing the mistake I answered – what are my ways to avoid overtrading.
In a scale of year, sessions in which overtrading prevails is really little – usually no more than a few sessions. When it happened in a few sessions in a row, I inflated this average 🙂
My tips to avoid overtrading
I have three ways to it. Remember that I try to commonsensically and statistically assess my strategies and trading. I look at numbers and judge what’s good in my trading. What in a longer time makes sense, not only creates a sense of profit (because profits are remembered, and losses able quickly to forget, perpetuating something what I did well because at one time it let me earn).
Firstly: I have determined hours, when I know that effectiveness of the given strategy is better. In this case, overtrading occurs only when I trade on scalping, on other strategies I don’t have such a problem. So I assess the effectiveness of scalping throughout the entire day.
This has led me to conclusions that I’m least effective in scalping at 11am-1pm of American time. Of course, there are sessions in which in these hours the scalping allows to earn something. But in a scale of quarter or year, those sessions is definitely less. Is it worthwhile to risk and hope that it is exactly this day? Yes:) I deny to what I wrote above. Only from one consideration and about it I described below.
Secondly: I set a limit of re-entries up to the given scalping motive. If the third in a row entry is lossy, I finish scalping on the given company, until crystallizing again a successful setup. So it usually requires to quite trading on this company to the second part of session. Not always at 11am-1pm it is necessary to fully reject the strategy, sometimes traded motive repeats in these hours. It is important to notice when it ends.
Thirdly: when I trade scalping (without overtrading) I know its average turnover. The warning lamp lights up when this turnover rises above the average. The lamp will light up red – when along with an increase in volume the result in a given session doesn’t rise. Then it already more than certain that it is worthwhile to look at point 1 and 2, and to treat it as overtrading.
Then quickly it is necessary to quite trading, at least for a bit, to leave and rest. Come back to trading in another session or in the second part of session. These are my best ways.
I noticed one more important thing. Usually after sessions, in which I trade overtrading (even when generally they are profitable); in another 1-3 sessions I calm my trading. I trade far less, far longer I wait for signals, which probability of success is higher.
Overtrading particularly dangerous for beginners
Overtrading is a problem peculiarly affecting beginner’s traders. They often indicate problems of number 1 and 2 described at the beginning. It is usually inability not to have a position all the time. How is in your case? Remember that in the first phase of learning, trading – overtrading can be your key to the coffin. Realize it as soon as possible and eliminate this mistake from trading.
These are my ways to overtrading. And what are yours? Share them with me in a comment below.
