The Trader’s Couch series explores trading psychology and the behaviors many traders have that undermine performance, then offer practical solutions traders can employ to get past the roadblocks.
Many many so called “active traders” fall victim to over trading. They wrongly associate active trading with trading all the time. The newly created no-commission environment has likely made the disease worse. Over trading often leads to rushed trades, unforced errors, flawed analysis, FOMO trades, blindly following other people’s trades, and revenge trades. All these variants of over trading undercut profitability and have a corrosive effect on our psychology as well because we lose more than we win.
Trader’s Couch : Drilling deeper into over trading
Think deeply as you read the quotes below.
“All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” Blaise Pascal 1600
and specifically for traders……..
” There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily—or sufficient knowledge to make his play an intelligent play.” Jesse Livermore 1915
“First, put your phone down, close Facebook, close Twitter, close YouTube, close Spotify, and turn off CNBC. Then intently watch the price action and the candlestick formations. Watch how price interacts with support / resistance. Make careful notes. After a few days, you may see a trade develop. TradingYoda 2020 (me)
At it’s core, over trading is the direct result of our absolute inability to sit quietly, by ourselves and do nothing. Let’s face it, waiting for an objective, high-probability trade to develop is boring. Active traders are often bound and determined to be trading every moment of every day no matter if there is a trade to make or not and it costs them big money. ( ask me how I know ) . The question we need to ask ourselves is if we are in it for the money or in it for the excitement or some other reason? Be honest about it.
The great Market Wizard Ed Seykota says “Everyone gets what they want out of the markets”. I must agree. Some people enjoy being in the lonely losers club, so they lose. Others want to be part of a social club, so for them StockTwits, Facebook, and Twitter are perfect. A select few want to make money and will do anything for it. Pros have learned to overcome over trading through hard work and self discipline and it’s not easy. True pros learn to discern the difference between “any old set up” and an “exceptional set up” and are willing to wait for it.
A quick story. Back in 2016 there was this guy I used to follow on Twitter. He would go dark for months. Then he would pop on with a tweet… “Max Short ES” or “Max Long ES” not a word more. Then over the next couple months he’d scale out, and go dark again. The guy probably only made 2 -3 entries a year, but made an absolute killing. He was the epitome of being a patient trader; lurking, watching, stalking the highest risk / reward entry point possible, then nailing it. Simply amazing. A true pro. I am not saying to do this, but his process was impeccable. We should strive for something similar in our trading.
I think there would be real benefit to most traders in practicing “doing nothing”. Once you can do nothing as market information flows over you, you’ll truly be in the catbird seat, ready to both recognize and pull the trigger when a primo risk / reward set up comes your way.
I double dawg dare you! Try studying charts and the tape for a couple of days and commit to not making any trades. I am willing to bet some among us couldn’t make it from 9.30 until noon on day one and if we did, our skin would be crawling. Push yourself to cut back on the trading while you hunt for optimal set ups. Over time you’ll be much more able to discern those excellent set ups that will pay a lot of bills. Let me know how you did!!
I wrote a another blog post on this topic in the Lessons from Livermore series if you’re interested in exploring more. Find it HERE
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