Overtrading - more is not better. How to minimize it?

If someone carried out a survey on the factors that most affect investors' losses, undoubtedly overtrading would be at the forefront. What is it really? It is certainly a "trap" in which we investors, whether beginners or more advanced, we often fall.

Overtrading is nothing else excessive overstocking. The main reason for this state of affairs is greed, and a kind of belief that greater market activity, more transactions will result in the potential profits will also be higher. As it often turns out later, the market brutally verifies this approach to trading. Overtrading means that even an investor who has a specific plan starts to bend it to some extent and strives to conclude subsequent transactions at any price. The effect of such an approach is in the majority of cases the loss of capital, and what may even be worse, a kind of discouragement of markets and further investments.

It should be remembered that the worst thing a trader can do is focus on quantity, not quality. Of course, the desire to over-conclude transactions may occur both after losing, when we want to play as soon as possible, as well as after a series of profits, where overconfidence and overconfidence come to the fore.  we think that the market is no longer able to "beat" us.

There is another type of overtrading that applies to entering too large a position in relation to our deposit. Now, this problem may affect traders to a lesser extent, because many brokers have decided to significantly reduce leverage, and introduced protection against negative balances, but always remember to choose the size of the volume in relation to a single transaction in a meticulous and thoughtful way.

Be sure to read: Short Term Profit - a strategy for low intervals

Overtrading - Causes

The most common reasons for overtrading include:

• wrong approach to investments: more intensity, more transactions, does not have to translate into higher profits. In practice, the higher the number of transactions, the higher transaction costs and commissions that we must cover to get out at 0 at all.
• too many instruments analyzed: currently broker offers are extremely rich. Often, they offer 200, 300 trading instruments. At first glance, this may seem extremely beneficial, because we have potentially more markets on which we can earn.
• analysis of too many time intervals at the same time: the market is open 5 days a week 24 / h a day. We can choose the interval from the 1-minute to the monthly chart. This undoubtedly tempts investors, because regardless of the day and time, there will be an interesting market to trade.

Ways to limit overtrading

At the beginning, we should ask ourselves the basic question: "Does overtrading concern us and do we have a problem with an excessive number of transactions?" - If the answer is "YES"there are several ways to effectively reduce it.

1. Trading plan: if we strictly plan to play subsequent positions, in practice we are able to limit overtrading to 0. Of course, in order for such an approach to make sense, we must have our own rules, which we follow in investing, and our strategy. It is a very good idea to plan your investments ahead of time, e.g. for the next day / week. It is worth taking a moment and identifying potential sets. In this way, if a given scenario is realized, we know that we act in accordance with our plan and we do not make decisions on impulse.

2. The specific time intervalIt is important to not analyze multiple ranges at the beginning of your adventure with the markets at the same time. The key is to find a golden mean. The analysis of many ranges for each asset can often lead to situations where we have signals at particular intervals that are really contradictory. It's best to specify one main interval and possibly the other, which will help us to refine the position of opening the position.

3. Transaction limit: If we have a problem with opening too many items, it is a good idea to introduce some kind of limits. For example, we specify a certain number of transactions in a given week and if it is achieved, our trading for a given period is completed. This approach forces investment planning very well. Analyzing the individual values, having the limit, we do it more deeply, and automatically focus on quality not quantity, choosing to trade only the best in our opinion setups.

4. Trading is not a shortcut: Unfortunately, what can discourage newcomers especially is the fact that investing is a long-term process. Big profits will not come quickly, after a few days or weeks. This approach is probably the most common reason for falling into overtrading. At the beginning, you should focus primarily on achieving a certain repeatability, rather than doubling your account in two weeks. It should be remembered that capital  1000 PLN will not make us millionaires, but if we are able to achieve regular profits on a smaller capital, we can successfully transfer it to large capital. Everything we learn will pay off in the future. The most important thing is to pursue the goal calmly and with small steps. Think long-term and achieve success.