Posted by strudy on Sep 30th, 2008

How to tell when you are Guilty of over trading.

The essential feature of overtrading is not the number of actual trades but your reasons and motivation behind each trade.

Confused? I shall explain further.

Overtrading becomes more apparent when in a “Bull Market” as the share trader is frightened of missing out or will rush into every reasonable trading opportunity that shows itself or that they can afford.

These trades involved are no longer based on money management or any risk control.

Here are four main questions that you can ask yourself if you think you are overtrading.

1. Is each trade based on sound research and financial analysis?

2. Is each trade part of an overall management plan that is based on matching the trade with the risk involved?

3. Does each trade have clear financial objectives which determine your exit position?

4. Does each trade only use capital allocated from your previous trades?

If the answer is yes then the trade is being made for the right reasons and the right criteria.

If two or more questions are answered in the negative, then this suggests that your are overtrading and your emotions are in charge.

Can You Guarantee Success Every Time You Trade?

The answer is a resounding NO! But you can maximize your chances of success.

Firstly have a look in the mirror. It will reflect your worst trading enemy, ourselves. But most of us will blame other circumstances for our failure in the market. When in reality it is our in ability to take losses over trading.

What Steps Can We Take to Complete a Successful Trade?

1. Identify trading opportunities.

How do you do this? Usually it is done by three ways. You have the option of using a database scan using a software program or by using eyeball verification of bar charts and using indication verification using the Macd, Rsi or your own favorite indicators.

2. Analysis of opportunities.

A. Check for bias.

B. Assess stop loss conditions.

C. Assess profit targets.

D. Rank by time / risk.

3. Trade Management of our Portfolios.

A. Watch the depth of the market on your entry.

B. Place and execute the order.

C. Enter details in order log. Print out chart with summary trading plan.

D. With your open positions (trades) each day you verify the original trading conditions arc intact.

E. Enter details into trading record and file contract notes.

Bulls and bears.

Firstly the bull is a buyer and the bear is “always” a seller.

The bull buys because he wants to make money, {don’t we all?}.

The bear is more complicated and can sell for different reasons. This can be just to lock in a profit because he thinks the share price is about to go down

The most fearful of the bears sets the lowest price for the day. This is done by offering to sell his shares at this level.

In a “bull market” novice traders rush into every reasonable opportunity they can afford.

These trades are not based on good management or risk control.

Please try not to get caught up in this market hype. If you start to chase prices upwards there is a very good chance you will pay too much for them, only to watch the share price start to recede when the buying panic is over.

Sounds familiar? I know this one by bitter experience. The share price went down and still I held on hoping they would start to go upwards again. I went past my stop loss level {forgot to put one on in the panic to buy shares} Still telling myself it would retrace. It did but 2 months later so feeling very thankful I sold making a 7 1/2% profit.

Those shares today 2 years on are now worth 200% more. I was too frightened to buy back in again in case the same thing happened again.

That was a hard lesson to learn. Plus with that money tied up $2,000 worth, I missed out on a few bargains in those  two months which would have made me a minimum of $650 profit more than if I had got out at my stop loss of 10% {{$200}.

I Wish You. Successful Trading.

Strudy is a keen successful share trader on the Australian Stock Market Visit his weblogs

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