Have you made successful trades, only to keep trading away your profits? This is a common problem for many traders. The fact that this is common also makes it a bit easier to diagnose and to remedy. Cheers!! But, it all depends on you! If you notice that you may have a tendency to overtrade, then that is the first step in fixing the issue. (kind of like getting sober I guess, lol!)
In my earlier trading I have been up over $800 dollars and traded myself back into the RED, if I would have just TAKEN PROFITS, AND NEVER LOOKED BACK, it would have been a solid $800 dollars added to the account! This is when I knew I had a problem that I needed to deal with, and to plan my trading day much better in order to thwart any ongoing pain I caused myself and my account!
So why do we tend to overtrade in the first place? Greed! Greed is the most common reason for wanting to continue trading even after making successful trades. If you (like me when I started trading) made solid trades in the morning trading session, and then continue trading, and end up giving back to the market, then trade even more to try and gain the profit back, then you are going to lose out very quickly and eventually blow up your account.
How can we fix this problem and start disciplining ourselves as traders? The very first thing any trader should do is to write up a trading plan. Your trading plan should include things like your max loss for the day/week, how much of your capital you will use for any single position, and how many trades you will allow yourself per day! One of my philosophies is to TAKE PROFITS, AND DONT LOOK BACK!!
Trading Plan (example)
- Starting capital : (your account value)
- Type of trading/ Stocks : (day trading/ swing/ long term)
- Your Goal : (what is your realistic goal or profit per day/week)
- Max loss per day/week: (whatever you determine)
- How many trades you allow per day: (example: 2 to 3 trades per day unless max loss is met)
- TAKE PROFITS, AND DONT LOOK BACK!!!
This is a very basic outline for a beginner trading plan. It is more or less a living document that will be tweaked with the experience you gain as you trade. Imagine these are the rules set forth by a boss that expects the rules to be followed as closely as possible or you will be disciplined, only the boss is the market and the disciplinary action will be major capital loss.
Another major component to the trading plan is to monitor your progress. You should always track how well you have followed your plan and if you notice any bad habits that need to be fixed. This can be done with a trader journal, you can also export your trades to an external service or excel spreadsheet to get an overview of your progress. Most brokers have a service or trade tracker that will let you see the numbers. It would be wise though to write a journal that explains the trade, your emotions and thoughts about the trade, because the numbers alone will not show that.
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