Problem with overtrading....

[kyle]

I have been struggling with my own pyschological side in trading. I seem to have a bad habit of overtrading and always trying to chase the markets.

I went through alot of articles and resources from several sites and found this to be a newbie trait. I have a question to the more experienced traders here. How did you manage to overcome overtrading? How many trades should I be looking to place as a day trader? Thanks

[torero]

I think on average I see 2-3 good trades a day (excluding trendless days where ranges are too small to bother) and I'm a trend-follower. But I'm not a scalper so I can't say for you if you are or not. Scalpers trade more at high volume. My trades can be from 10 mins to an hour depending how trendy the market is. The trait of my trades are the winners stay in position longer than losers. The counter-trend trades (I do little of them) are quick ones since I determine they are scalping trades.

If you're overtrading, it may be because your entries are off (this may be from chasing) and your stops might be too tight, getting kicked out too prematurely so you enter. If you hold off from chasing, you'll start to see ideal entries (high reward/low risk trades) don't come that often.

You have another psychological weakness is that chasing is caused by greed or envy. You feel the market (and profits) are going without you. Need to curb this emotion. You need to see the downside (risks) from trade. You tend to see the profits but not the losses. Need to consider the losses first. Once you keep this in your head, you will start to trade less because you will be aware of the potential loss from the trade. To consider your loss, you need to set your stop loss order, it's a real loss if you take the trade and consider it gone if you take it. Mental stops are fine if you're an expert but I still make physical stops (I am and will always be a newbie!). Try it.

One other problem you may also have it not knowing where the trend is and range is (thus overtrading due to thinking every moment is an opportunity moment). Need to work on your chart reading or study and research the indicators you're using more. Test them out and find if they work in certain conditions and not in others.

Need to go back to paper-trading to work on your entries to prevent chasing. When you paper trading chasing, you'll see for youself how unprofitable it is and maybe this will open up your eyes to the problem.

Good luck.

[kyle]

Thank you for the reply torero. I truely enjoy your comments. I do often get stopped out just to see the market move in my favor.

From my observation this is what I see: My entries are poor and it conflicts with the fact that I use tight stops. Like you mentioned, I need to work on my entries so I can continue to use tight stops.

I often hear of professional traders using more mental stops than physical. I am curious to know what the advantages and disadvantages of physical vs mental stops.

[torero]

If you have the discipline in place to consistently use stops, then mental stops are ok; this is why I say only experienced traders use them because they already have the discipline to cut the losses when it's time to the pull the trigger. For people like us, who still require the discipline, physical stops are a must. When we will the mental stops the slack from time to time. But those are the times we lose more than we like, bigger hole to get out of.

The best way to find the stops is to use pivots (higher highs higher lows and lower highs lower lows) I mentioned in other threads I posted today. I usually place my stops just below the previous low pivot for longs and previous high pivot for shorts. Research this for yourself and see if it fits into your plan. If you have tight stops, move to a timeframe where the low and pivots are closer together to your range of stops. But keep in mind, the lower the timeframe, the more difficult it will be, you have to keep higher timeframe in mind on direction.

[Soultrader]

Hi Torero,

Read your post and something popped out in my mind. I was always curious to know the exact stop placements traders use when using pivots. How many ticks away do you usually place your stops above/below a pivot? The markets do have a tendency to test the highs or lows and even violate it by a few ticks.

[torero]

	Quote:	Soultrader
	Hi Torero, Read your post and something popped out in my mind. I was always curious to know the exact stop placements traders use when using pivots. How many ticks away do you usually place your stops above/below a pivot? The markets do have a tendency to test the highs or lows and even violate it by a few ticks.

This is an example of my trade last Friday. I chose 600 because the tendency for prices to fluctuate between pivot high and low is 2-4 points. So my stops are usually 1.5-2.5 pt.



I took my short at 758.1 and didn't exit until 754.1 where there was resistance 1 pt away. I move stops until the target is hit or my last stop gets hit.

[Soultrader]

Thanks Torero. Alot more clear with the chart you posted. Your entry point would be the test of the high (double top failure)?

I have also found the 600 tick chart to work fairly well on the ER2. Thanks for the tip on this... also pretty looking charts you have there.

[torero]

The entry would be the break of the low of the previous bar on the second top with the stop at the highest of the 2 tops.

Yes, since I'm a big believer that charts say it all or charts don't lie, what better way to talk about markets than explaining using charts? I spend alot of time drawing charts and making note and saving them for myself to study later on. Best way to learn about your skills levels on how you view the market at that moment in time.

[Soultrader]

Thanks Torero. I also like to keep charts and videos on my trading to reflect and seek improvement. If you dont mind me asking, is the text and lines drawn on the charts part of the platform or do you use a third party software?

Also, I remember you mentioning in the chat room about your exit strategies. From my understanding you like to exit a full position instead of scaling out? Are you able to sit threw the pullbacks/retracements this way? Thanks

[torero]

Yes, charting tools are from TS (check View->Toolbars->Drawing). Yes I take positions in 1 swoop and exit in one swoop. It's still tough sometimes to hold oneself back from not exiting when watching the retracements. But I've come to realize 2 things: 1) money is made and then some from sitting on winners to cover the many losers. 2) these retracements indicate that the trend is healthy, giving new players a chance to come in and push the trend further. 3) Many times I realize I always take my profits too early no matter how much I think the market has gone already; this is a bias I'm still trying to get rid of.

Of course psychologically it's tough to watch prices go against your position but a couple of things I did that helped me overcome them. Once the trade was in my favor, I put the stop at breakeven. Once I had the position risk-free, it became easier to let the position go its way and only to move the stop to add more profits. The other thing I overcame was the initial stop loss; I had to accept that will be the loss I personally accept already, no matter the outcome of the trade. Knowing this makes me more careful about taking a position and avoid overtrading. So if it goes against me, so be it. This comes from confidence but confidence from letting go is from knowing your strategy will work and that takes lots of practice, time and patience to see for yourself that the strategy work (backtesting and papertrading). I took one year to papertrade before I was confident enough to trade it and accept the loss on each trade I make. From this period I improved my stats that 1 out of 2 trade is a loser so that fact made me comfortable about taking the loss because I know the trades I take are carefully selected for the high probability trades.

Having confidence in your system is the first hurdle. The last hurdle is patience to let the winner take its course. That is why exiting takes a long time to master because patience is the last trade virtue a trader learns and masters. Just IMHO.