One of the greatest temptations that will face any trader is over-trading. It’s a real thing. It’s subtle… and it can be very deadly to your portfolio.
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Over-trading is a manipulative mistress that caters to all of your needs, strokes your ego with all the love and attention that no one else wants to give, then steals all the money from your pocket and nabs your credit card when it’s over.
Let’s not beat around the bush, sometimes we all fall into the terrible habit of over-trading; and believe me, it’s a nasty habit that really has no good advantages and sadly, the traders who fall into this trap rarely know how to stop themselves from entering into dangerous territory.
Below are the five risks of over-trading. I dare you to see if you recognize yourself here.
Chipping away at your will power
Our will power is one of the greatest assets we have as humans because it gives us the wherewithal to control our desires and critically think before making decisions. It’s what separates man from beast. I would argue that there is a finite amount of will power for every human being. You know that saying, “everyone’s got a price,” but will power is the voice that says, “it’s not worth the trouble.”
What does this have to do with over-trading? Well, our choices determine whether our will power is robust or depleted. When you begin down the road of over-trading, your decisions are slowly chipping away at your trading discipline.
Picture your will as the fuel that drives you. It’s the fuel that drives every successful trader. And each time the wrong choices are made, whether it’s spending ridiculous amounts of time in the market, or breaking those trading rules, traders draw from their willpower ‘fuel tank’. Gradually the tank becomes empty and the slippery slope of bad choices continues.
So, if will power is finite per individual, wouldn’t it be better to set the direction for success? I would surmise that over-trading is a lack of will to do the hard work and pivot from bad habits.
Saps energy
Over-trading doesn’t just deplete one’s will; it can sap your strength and physical energy. Now, without going into the whole Law of Attraction thing, over-trading practices can often make us feel hollow, physically and emotionally exhausted, and too careless to properly respond to good or different opportunities.
Think about the hamster that’s running like crazy on that wheel…and going nowhere. Get off the hamster wheel. If you don’t have the time to spend analyzing charts or have a good trading plan in place, and you’re just throwing trades for the sake of trading, then you’re really expending a lot of energy with no real pay off.
FOMO and frustration
Sometimes over-trading is a symptom of frustration and general mood. No one likes losing, so when a loss is reflected in the trade portfolio, it not only affects your wallet but your emotions.
Of course, if you’re combining FOMO, the fear of missing out, with frustration then there is a greater chance of perpetuating your losses and throwing a wider trading net than you might otherwise do if you were thinking clearly.
Don’t feed poor choices with more poor choices. Step away from the trades and take a breather. Rebuild your confidence, get some rest, do something that positively impacts you so that you can get into a positive mindset.
Once you’re in a better place, then start your trades back again with clear direction. Set small goals, get small wins, rinse and repeat. Eventually, you will create better habits and can trust yourself with bigger risks and goals.
Over-trading = Less Profit
The fourth risk of over-trading kind of speaks to what we’ve already touched on – it has a negative impact. Generally, statistics prove that the more you trade, the lesser your profit. Don’t believe me? Check Google or ask experienced traders in Forex and investors in hedge funds. More often than not they will say that more trade equals less profit.
There are a lot of reasons for this. One is transaction fees. The more trades you have, the more fees you are incurring. Now consider just playing by the odds. Targeted trades that are closely monitored is easier to control than a whole slew of smaller trades with minimal impact.
The Trading Plan
Chances are, if you are over-trading then you either never had a trading plan to begin with, or you’ve completely rejected the one you had. Human nature demands that we have borders to keep us happy. A strategic plan is just an iteration of your trading boundaries.
Set some rules that include a percentage of your wallet for actual trading, how aggressive you want to be, if you are trading to invest long-term or trading for quick returns. What can you afford to lose? What’s a good enough win?
Plans can change with time and experience, but have a plan and stop sabotaging your portfolio with over-trading because you’re feeling lost or uninspired. You are financially killing yourself. The goal is to make money, right? Otherwise, what are you doing it for?
Disclaimer
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