Today at Peak Capital Trading’s mentorship session with our traders, we discussed overtrading and how to stop it. I found it interesting the way the discussion unfolded, and so I decided to share some thoughts arising from our conversation with you Bear Bull Traders as well.
Sometimes we joke (like the image above – not my trading) that it is not overtrading if you make money, it is overtrading only if you lose money. Believe it or not, there is some truth to that statement. For example, in today’s recap I explained that although I saw a trade on AMC for a VWAP Reversal, and I tried to take it, I got out at break-even because I was way above my daily target and did not want to lose my morning profits. AMC eventually did a nice reversal, and rats, just a few seconds after I exited the trade. Brian knew that was probably going to happen and so he stayed in the trade, but his trading plan and profit target are different from mine.
I told myself, “Damn, I should have stayed in the trade.” Nevertheless, sticking to your trading plan and your rules are rewarding in the long term. I may have missed that trade and some profit, but being able to stop trading at a profit target or stop loss is an excellent habit to form.
If you keep trading after a profit target hit or a maximum loss hit, and you make profit, it is a temporary reward that might turn into a long-term addiction. It is just like enjoying a sugar high from a bowl of ice cream or a tin of Pepsi. It is very enjoyable at the moment, but making it a habit is dangerous for your health.
In order to stop overtrading, here are my recommendations:
- Have a daily profit target.
- Have a daily maximum loss in mind.
- Make sure to only take trades that you have a TradeBook on.
- Have a maximum number of shares or number of tickets that you make per day.
- Have a maximum amount of commission that you are willing to pay per day.
Again, sticking to these rules requires discipline, but always remember, trading can be addictive. A normal person will enjoy a cocktail at a party, and they may get tipsy and be able to socialize easier, but they know when to stop. On the other hand, an alcoholic will keep on drinking. They will not have a limit. They may end up puking at the party, damaging their social status, maybe even ruining their life. As a trader, you should know when to stop, even though the next trade may be enjoyable, profitable, or bring your day back to break-even or green. Even if something very positive happens, in the long term, overtrading does not help you, just as overdrinking does not benefit anyone.
To your success,
PS: I am excited to be able to see many of you at our NYC meetup (celebrating Thor’s 40th birthday party). RSVP here. Everyone is welcome, including non-members and their friends and family. Drinks are on us!
PS 2: We always welcome committed traders who are serious and patient and who want to take their trading to the next level. We are currently offering 1 year of full access to all of our content at a 40% discount. Please feel free to join us. I in particular look forward to seeing you in our mentorship sessions (which are only available to Elite members). Check it out here.