Over trading is one of the main issues that most of the traders face. It doesn’t matter which market you trade in Crypto, forex, stocks or commodities. We all trade charts and we all have emotions.
In this article we will talk about how we can overcome overtrading and avoid our trading losses that we face just because we didn’t control our emotions and over-traded.
Before we head straight into how we can control it let's find out why we overtrade and for this we have to break down the key metrics.
Lack of preparation
Taking a trade without plan
Paying too much attention to charts
Lack of trust (Every single day market will give you opportunity )
Revenge trading
Trade your charts not PNL
Depending on trading income
Addicted to be in a trade always
Fear Of Missing Out
Lack of preparation
The number one thing that puts you in a position that you overtrade is lack of preparation. You do not prepare for a trade before you enter it. You don’t know what you’re doing.
" I am Buying because it's Going Up"
You’re entering into a trade because you see those big green candles going up or red candles going down Or you’re entering the trade because someone told you so. When you enter a trade because someone shared it you don’t know what their invalidation is and you don’t know when they can exit their positions. Every trade comes up with trade management. If you trade your own plan you know when it will invalidate your idea and you take your exit.
How can you stop it?
The only way to overcome this is LEARN To Trade, learn trading before you start doing it. If something is going up you should know why it's going up and if something is going down you know the reason why it's going down. And secondly I mentioned you buy something because someone told you to buy it. It’s ok to follow someone, you get more ideas but the decision should be yours. See what idea someone is posting and do your own analysis/research on that. This way you get a better idea from yourself and you get your invalidation and take profit levels. This is how you exclude lack of preparation from your trading. The more you follow people on social media the more ideas you will get and the more likely you will take those trades and lose money because you don’t know what you’re doing. If you just prepare your own trade plan you will take less trades with more probability of winning because you will exclude all those ideas you’re getting from social media.
Taking a trade without plan
You over-trade when you don’t have a plan. A good trader will always have a plan for his trades including where he will be taking profit, where his stop loss will be and why he is taking that trade. It is something really important you need to trade, Trade with a plan. When you don’t evaluate a trade before you take it, you will most likely chase every other coin that is going up to make money and that is because you don’t know what you are doing you just want to make some money by chasing those red or green candles (depending on which side of the trade you’re taking)
How can you stop it?
It’s simple. Prepare a plan, reevaluate it and Take it.!
The only reason you over-trade is trading without a plan. If you do not evaluate your trade before you take it you will keep on chasing every other coin that is going up and you will keep losing money.
How can you prepare a plan? Of Course learn how technical analysis works and learn to draw zones/levels on charts.
Some days it will happen that you will not get a good plan at all that’s absolutely perfect, you are doing amazing. Just do not take trade that day.
Paying too much attention to charts/Martket
If you’re spending so much time on charts, watching coins go up or down, you will most likely end up taking a trade and it will most likely be a losing trade because you’re taking it with a mindset that you spent so much time on chart now you should make some money to pay yourself. Another reason why you will take that trade is your emotions, it doesn’t matter how good trader you’re if you are continuously watching those candles going up you will force yourself to take that trade, you will forcefully add some lines, some support/resistance to fit it with your bias and take that trade. Trust me most of the time you will end up losing that trade that you take because of this.
How can you stop it?
Spend less time on charts, the more you spend time on charts the more you get addicted to it. This is very hard to overcome but for the sake of your career, for the sake of your money you have to do that.
Set a schedule, set a time that at this time of the day i will turn my laptop/Pc off and will not take any trade. Post New York session is the perfect time for that. The New York session brings good volatility for a trader, try to find trade in that session if you don’t get any plan just don’t take it and turn your laptop off.
Secondly, Do not take trades late night, doesn’t matter which time zone you’re living in if its mid night, know that half of the world is sleeping if you’re in Europe at that time Asia ,middle is sleeping , if you’re in Asia know that banks are closed trading brokers are closed if crypto is running volatility will be less than what you see in day sessions like asia, london and new york.
So do not take trades mid night when half of the world's banks are closed.
Lack of trust (Every single day market will give you opportunity )
Another reason why you over-trade is you think the market will give you opportunities every single day. No it's not like that there will be days, even weeks when there will be zero opportunities in the market and in that period you should be controlling yourself and do not take trades as there is no opportunity.
Whether there are opportunities in the market or not you can only know that if you know how to plan a trade.
Again everything ends at the point that you should learn trading and planning your own setup.
Revenge trading
This is one of the most common reasons why people over-trade and lose money.
Taking a trade not because you have a plan for that but because you want to cover your losses. When you take any trade for this reason you most likely lose again and when you lose again you either increase your position size or you increase your leverage and once you keep doing that you end up losing all your money. Why you lose again and again because its always for the same reason you want to recover that loss not with the reason that you planned it.
How can you stop it?
Understand the fact that you’re trading in a market where there are two probabilities: one is that you will make money and the second is you will lose money. If you lose money, accept the defeat and prepare for the next trade plan.
If you can’t accept your losses, trading is not for you , go open a shop, do some business, buy/sell some products.
Trade your charts not PNL
This is somehow aligned with over-trading. As I mentioned above you only overtrade because you want to take revenge from the market to get your loss back. And it is only because you don’t trade charts you trade money while it's the opposite. You’re taking trades because you see it on the chart. Your entry, profit and loss should be based on charts not your PNL. Most of the people look at the amount of money they are making or losing on a trade while they take the trade based on charts.
Try not to look at your PNL just trade your charts, this will keep you committed with your plans and it will be less likely you will take revenge trades or more trades because you will only take the trades when you will see it on the charts not because you see a negative PNL on your account.
Depending on trading income
Another possible reason why you may be overtrading is because you’re fully dependent on trading income.
There is nothing much you have to do to avoid this it's pretty simple.
1- Exclude this from your mind that you have to make money because its your only source of income.
2- Before you fully depend on trading income, have at least 1 year of expense money in your bank account. This will give you a year to grow your account and be successful.
3- Have a side business or a passive income stream or it can be a job too. This will also reduce that dependency from your mind.
Addicted to be in a trade always
If you’re new to trading you might be facing this problem that you want to be in a trade all the time because you feel like if you don’t open a trade you may miss out. Another reason is spending so much time on charts. We discussed it above.
Fear Of Missing Out
Fear of missing out from a trade only comes when you don’t trade with a plan. A good trader will always find another way to make money if he misses one move .
So do not rush into trades, if you do not have any reason to enter a trade except you feel like missing out. Leave that trade.
I hope you enjoyed reading the article and it helped you to learn something. Let me know if you have any questions regarding this I will love to answer.