August 04, 2008 at 7:05 am | | Comments 2

The Biggest Enemy of Traders

The day stands out in my memory quite vividly, but only because it wasn’t all that long ago. I had dug myself into a hole early in the day, and while I wasn’t too deep to get out of it, I was definitely frustrated. Let’s just say the guys taking the other sides of my trades were doing alright on this particular day. 😉 I had seen no swing trading plays to initiate, and the day trades were acting fickle. Shorts would break down with no conviction and bounce immediately back up, and the only stocks showing strength were doing so on poor volume, which meant they couldn’t be trusted as buys.

I had taken several losing trades in succession, and was having a dilemma of whether to take a break, call it a day, or stay and battle it out in an effort to recover. At about that same time, a thought crossed my mind as to why I was in this position, and I recognized it instantly. I had allowed myself to fall victim to the biggest enemy of today’s traders: overtrading.

While the shorts and longs I had traded were clearly not moving with conviction, the real reason I was underwater was due to my taking trades which were merely mediocre. I wasn’t waiting for my pitch, and rarely does that kind of impatience pay off in trading.

The Temptation of Convenience

It’s so incredibly easy to do these days. In fact it’s downright convenient to buy and sell stocks. With lightning-fast executions and dirt-cheap commissions, those unplanned trades tend to come along frequently and easily if we allow them. And yet, have you ever noticed how few of those impulsive trades yield great profits?

My work ethic has never been questioned by those around me. I never want to be still, so I’m always striving to move toward some kind of goal in several areas of life. Many of us face that internal pressure to stay ‘busy,’ but let me make one very important distinction: in trading, hard work does not equate to high activity. Just because you might be busy placing continual trades doesn’t mean you’re being effective or efficient.

Exercising Some Self-Control

At times we all have to remember that there’s serious value in simply concentrating on the correct things. Believe it or not, that means there will be occasions when not trading is best! Most of the time though, it’s going to mean that we formulate a flexible but well-defined trading plan, and then stick with it. Hunt continually for the setups you love, but don’t ever lower your standards out of boredom or for the sake of activity – that’s never worth it. Discipline plays a major role, so if you don’t have it, you’re in no place to be trading until that’s under control.

As you become a better trader and gain more experience at the screens, you’ll also find ways to stay away from those market conditions which prompt you to overtrade. Keep the phone handy. Have a stack of books to browse if the market isn’t moving. Go run some errands or catch a movie.

But by all means, when your ideal conditions do emerge in the market, get busy!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

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  1. The Day stands out in my recent memory as I went 4 for 4 profitable. I think that there was an expectation (partly via the video) and partly that it was a Monday, that the market would be up. But, in my watch list of the stocks listed for day trades, I immediately saw that Longs were going down and shorts were going up. With irregularity, I use the day trade list as a sort of directional index for deciding which setups to take. Yesterday was not a good long setup day.

  2. Hey Jon,

    Thanks for your comment – You bring up a great point of flexibility on an intraday basis. When the market or your watch list is moving differently than anticipated, it takes a willingness to go back to the drawing board if you do want to be active on such days. Something which experienced traders are much better suited for than beginners, so long as overtrading (forcing plays) is still avoided.


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