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Why do we traders tend to Over trade?

 
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Author Why do we traders tend to Over trade?
Shahii
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Post: #1   PostPosted: Thu Jul 26, 2012 12:33 am    Post subject: Why do we traders tend to Over trade? Reply with quote

One of biggest mistake which every trader does in his initial days is Over Trading. We have heard it many times that avoid over trading. But Question Arises why do traders over trade? What force us do that? Answer is simple - Because Markets don't move in linear fashion and traders mistake small retracement for the trend change. And with every such small illusive move, traders tend to change their stand and converting short to Long so frequently,ending up with over trading.

Lets take one hypothetical Example :
Nifty is coming down from 5350 and now its trading at 5310 and looks stable. My thinking cap says that 5300 should give it a support.So I bought Nifty Futures at 5310 keeping 5300 Stop loss, As soon as I bought, Nifty went till 5320 making me happy, But I wanted it to go even further wishing to make few more points. But slowly It came down back to 5310 and then to 5302, I was disappointed and thinking why the hell i didn't sell at 5320, I could have made at least 10 points and now its going to eat my stop. And Yes it takes my stop at 5300 and then went down further 5 points to 5295.
And Now something happens which no trader will like, It came back to 5300 and slowly started going up to 5310, now my mind will say market noise just ate my stop my entry was right, I just kept stop loss too tight!! Why not take one more entry again at 5310 keeping 15 points of stop loss this time. But Nifty has something else in her mind. She turned down immediately and took my stop again at 5295.

Now I am just furious over non sense nifty moves and just want to take a revenge and wants to take back my 25 points which i just lost in two trades. My Mind went numb and this time I turned bearish and shorted double the quantity at 5295-96 levels to make up my loss . But Nifty Just made a double bottom reversal pattern with first bottom at around 5295 and second bottom at 5294 and now rallied back to 5310 and then it rallied another 50 points from there and I just closed my third trade at 5310 with another 15 points loss with double the quantity. And after loosing enough money and points in the market I am just feeling so helpless with the crazy moves of Nifty. But Nifty just made a double bottom and it does all the time.Why would she bother how much I lost and why I lost!!So even though my initial analysis of support at 5300 was right, I still lost money because of over trading.


How can we avoid Over Trading :
1.Start working on larger time frames and avoid whipsaws, You will get less entries and your trade will have wider stop which will be saved many times by small noises. Less Entries means less brokerage and taxes but more peace of mind.

2. Not to offend Ichart- Intra day Traders,There are very good intra day traders in icharts, But for new comers - Stop Intra day trading until you really understand all the moves and shift to swing or Positional Trading Systems so that your trades will not only get enough breathing space of wider stop points but also will get enough time to work in your favor because there is no compulsion to close the trade at the end of the day.
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sherbaaz
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Post: #2   PostPosted: Thu Jul 26, 2012 8:03 am    Post subject: Re: Why do we traders tend to Over trade? Reply with quote

Shahii wrote:
One of biggest mistake which every trader does in his initial days is Over Trading.


Nobody can avoid over trading do what ever in the initial days of his trading.

It is the learning curve and one cannot avoid it.

regds,
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smartcancerian
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Post: #3   PostPosted: Thu Jul 26, 2012 8:30 am    Post subject: Reply with quote

Good example given to demonstrate trader psychology....i think every trader has gone thru this phase or will experience this overtrading..i still remember..i did the same thing long back..in HCL tech..I opened trade with 250 shares in cash..reversed with double qty 500 shares(on hitting SL) & then again reversed with another double 1000 shares(on hitting SL)..All this happened in just 8-10 minutes of mkt opening..(at that time mkt used to open at 9.55am)..& finally i realised that i lost 10K..which was more than 75% of my monthly earnings of that time..shocked & lost..i walked away from exchange with a commitment ..Bullshit..i am not going to trade/come to exchange ever.. anger3
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ProTrader
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Joined: 06 Jul 2008
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Post: #4   PostPosted: Fri Jul 27, 2012 6:42 am    Post subject: Reply with quote

One scenario is that you are trying to recover your first loss, second loss, third is profitable, so you go for fourth and so on...it is the hope of recovering such losses that makes one trade more. The other scenario is that your first trade is profitable, you go for second, it is a loss, you go for third and on and on. One tends to over analyze in such situations.

The same goes for folks who keep on averaging their positions with falling prices. Intra day becomes positional and positional turns into investment Mr. Green .
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Exness Official
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Post: #5   PostPosted: Thu Jun 25, 2015 6:50 pm    Post subject: Reply with quote



Don’t overtrade.

Focus on the quality of each trade, not on the quantity.One of the hardest lessons for a trader to learn is not to overtrade.You will lose BIG if you continue to overtrade.

Every time you enter the market, you expose your capital to the market. The more you expose your money to the market, the better chances your money will part with you.
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Exness Official
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Post: #6   PostPosted: Wed Jul 01, 2015 6:28 pm    Post subject: Reply with quote

smartcancerian wrote:
Good example given to demonstrate trader psychology....i think every trader has gone thru this phase or will experience this overtrading..i still remember..i did the same thing long back..in HCL tech..I opened trade with 250 shares in cash..reversed with double qty 500 shares(on hitting SL) & then again reversed with another double 1000 shares(on hitting SL)..All this happened in just 8-10 minutes of mkt opening..(at that time mkt used to open at 9.55am)..& finally i realised that i lost 10K..which was more than 75% of my monthly earnings of that time..shocked & lost..i walked away from exchange with a commitment ..Bullshit..i am not going to trade/come to exchange ever.. anger3


I understand your frustration , but we should keep our mistakes and make them an example as a learning experience. And we have to quit overtrading so that we can estimate a minimal loss
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