Overtrading describes those speculative activities where an investor enters and leaves the market too often. There is a fine line between making money and losing it when it comes to trading. While some people might venture into the stock market with ambitions of becoming millionaires overnight, others might focus on more realistic goals such as long-term capital growth. However, regardless of the trader’s motive and investment strategies, overtrading keeps coming up: buying and selling too often, resulting in losses.
If you’re new to trading or you’re looking for ways on how to prevent yourself from overtrading (without denying yourself all the fun), have a look at this site for more information.
Set Up Trading Goals
It would be best to always have a goal in mind when you trade. Setting up trading goals can help prevent overtrading because it gives you a direction to follow and focus on the right things, such as capital preservation. As for what your goal should be, make sure that it’s realistic and achievable within a specific time frame. Once you’ve met your objectives over a certain period, reward yourself for sticking to your plan. This will keep you from falling into the overtrading trap since having something at stake makes you more protective of your assets.
Set Daily P/L Targets or Take Regular Profit
For traders looking at short-term gains, setting daily P/L targets is a valuable measure that can help prevent overtrading. This means you should only trade with money you can afford to lose, be content with your profits and withdraw them before the day is up.
To achieve this goal, consider charting or following technical indicators, which will give you an idea of when to get in and out of the markets. Furthermore, if you’re looking at long-term gains instead of short ones, setting profit taking targets could also work well for you, just as it did for other traders who are looking at short-term gains.
Set Stop Losses
Another way to prevent yourself from overtrading is by using stop losses during each trade. The point of setting stop losses is to ensure that you never lose too much money on a single transaction. This works well for traders who prefer taking profits when they are green or break even. When this happens, they can hold off from selling their assets until the market goes up again and make some good out of it.
Keep Your Number of Trades Low
Overtrading is a sign that you’re acting impulsively and without a plan. Since it is emotionally driven, the solution to this is simple: have a trading plan and follow it. This will help you avoid making rash decisions. However, just having a plan isn’t enough to safeguard your finances – you must also discipline yourself, so you don’t deviate from your strategy or let emotions take over. If something does slip during the day, have some cash reserves set aside so you’ll still be able to trade if an emergency comes up.
Do Not Recover Quickly After Losses
If you lose money in the market, have some time-out first before jumping back in. This will allow you to unwind and reason about what happened so it won’t happen again. Jumping right back into the markets after a loss is an invitation for trouble. Give yourself some time and space before getting back on the horse.
Track Your Trades
Being aware of your trading habits is one way to prevent overtrading because it allows you to monitor your performance to see how profitable or consistent you’ve been. If you find that over time, there’s a tendency for you to trade more frequently than usual, then this may be an indication that something is up with your strategy or the market conditions are beyond your control.
Buy and Hold When Possible
If you’re looking at long-term gains, buy and hold is always a good option to consider since it doesn’t require much effort from you and can deliver decent results over time. On the other hand, if you find yourself too eager to buy and sell frequently, this could be a sign that you’re trading impulsively or dealing with market conditions that are not very strong or weak for that particular asset.…