Overtrading: A Psychological Factor

Overtrading is part of trading psychology because traders start overtrading to cover their loss, and greed and to become rich quickly without knowing risk management. Traders who know their goal and have a trading plan with proper risk management never get into overtrading. 

To Avoid Overtrading, we are sharing a few steps that you can follow for better results.

1. Having a trading plan and practice to following it

A Trader without a trading plan is like a body without a soul. Firstly you need a trading plan having what trading setup you are going to use, rules, risk management and position sizing. 

Try to set a limit of having risk per day, once you are done having loss per day as per your risk-taking capacity, close the system and enjoy your day. Profit and loss are part of your trading journey. The more you think about loss indirectly your subconscious mind will only attract the loss and by overtrading, you are going to blow your account. 

Write down your trading plan, read it before you start trading and follow it, it will help you to stay disciplined.

2. After a Major loss, stop trading and go out on vacation

After reading this you must be like: Are you kidding? But it is true that when you have a big loss, by default you are going to have emotional pain human nature. 

After suffering from a big loss, taking a break will help you to come out of the emotional pain and once you heal from the pain start your journey with the realization that whatever happened before it was all your decision. 

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3. Trade for a limited time

Trading is a serious business, not like 9-5 jobs that you trade all day until market close. As discussed early, when you have a trading plan and proper trading strategy you will find 1-2 trades per day. 

Many traders Sit all day sitting in front of the system and lose money they earned all day because of greed and fear of missing out. Once you are done with 1-2 trades stop and focus on how you can improve your trading skills.  You can read books, and study the charts for the next day instead of staying 9-5 in front of your pc.

4. Set the limit 

When you set the limit for Profit and Loss for the day, limit the number of stocks for trading; limit the trading setups your mind will be ready for it before you start for the day. 

Setting the limit is not about limiting yourself. If you watch the stock prices all day, by nature you will think about taking trade whether your setup is there or not and you will end up losing what you gain or even more than that. 

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5. Accept the reality

As a trader, you must be aware of the fact that overtrading can take blow your account. Once you trade again and again you forget all your goals, setups, and plans and your revenge with the market starts. When your ego and emotions take place nothing can stop your account to vanish. Always be aware of this fact and keep it mind market will always open for new opportunities.

Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.