I am a pretty aggressive trader, but still occasionally find myself asking how to avoid overtrading on quiet trading days. My interest has never been to change this aspect in myself, because it has its uses. When the market is volatile I will kill it, but during quiet times this desire to “pounce” can be a problem. Here is how I personally tackle the overtrading issue on quiet days.
How To Avoid Overtrading on Quiet Trading Days – Distractions
Basically, when I trade I have a few distractions around. If the market is very active then I will be focused on that, but if it isn’t then my attention will drift to my distractions (which save me from making bad trades).For example I will have LinkedIn (connect with me, you can also add me on Twitter) open and read a few things, or comment in discussion groups. I may also jot down notes for website articles, or actually post something on the website. I have also played poker while trading. I have traded a demo account while trading live at the same time so that I could act out my impulses on the demo instead of with real money (which has lead to some additional strategies being developed). I browse Psychology today (or whatever site may be of interest to you).
I do this on one of my monitors, so I can still be watching the market at all times. At no point have I ever missed a trade by doing this, but it has saved me from a lot of bad ones. I am still focused on the market, but if the market is quiet and isn’t doing anything I am content to have it bounce around on one screen while I check out things on another.
Some may scoff at this idea, but it works for me. Ultimately, after 10 years of trading I know my tendencies. It is unlikely I will change my trigger finger tendencies, so I do this. And I don’t want to change this tendency, because during volatile times it is that very tendency which reaps huge rewards. It is just a matter of knowing myself and knowing how to productively handle the situation.
Not All Distractions are Good Distractions
While I find having some distractions help, others can hinder. If I (or you) am trying to avoid overtrading taking part in distractions that encourage trading isn’t exactly wise.
When overtrading is an issue for me I will not watch the news (ie. CNBC) while trading. “News” and the varying market commentary can get in your head. Someone mentions something and you get in your head to make a trade which isn’t part of your strategy and which of course loses money. While I find it entertaining to watch them try to explain market moves, completely contradicting what they said 5 minutes ago, I avoid watching until I am done trading. See: Do I Need to Watch the News to Be a Good Trader
In fact, I avoid anything that could be construed as “advice” while I am trading. When I am done I will listen to others opinions on markets and trading, but not while I am actually trading.
How To Avoid Overtrading on Quiet Trading Days – Have a Plan
Having a well laid out trading plan is also crucial. My plan keeps me out of a lot of bad trades simply by stating what market/movement criteria needs to be in place in order for me to take trades. If those criteria aren’t present, well, then it is time to revert to one of the aforementioned distractions.
You should know the strategies you trade so well that you can just glance at your chart and know if you have a trade. If you are constantly questioning whether you have a valid trade signal or not, the strategy is likely not well-defined enough, or you haven’t mastered it. Creating a solid plan and putting it into practice over and over again–using a demo account initially–means you will find it easier to avoid to avoid bad trades. You also won’t need to be staring at your chart relentless either because you’ll be able to quickly see when conditions are shaping up for a trade, or not.
How To Avoid Overtrading on Quiet Trading Days – Internal Work
My “distraction” method may seem very simple, and even enabling in a sense. But it actually took a lot of internal work to realize that with trading “less work is often more” (at least for me). When I try to “grind it out” each day, I don’t enjoy it and I also trade worse. Keeping my mind somewhat detached from the market by allowing other activities in my day while I am trading has been a big step in my trading and quality of life (or course some other people may be “grinders” and find having distractions around an absolutely horrible way to trade).
I decided to use the methods I outlined based on one of the most powerful books I have ever read, called Accepting the Radical (Ronna Smithrim). After going through several stages of discovery and acceptance of a problem–which this book outlines–one of the final stages for overcoming an issue is that a course of a action must be taken which faces the problem and also takes into account what has been learnt. The final step is to accept the actions regardless of outcome.
So utilizing distractions should not be taken lightly. Deciding on this course action was the result of much reflecting, understanding myself and understanding the markets. This course of action may not necessarily be what is best for someone else, especially if that person is prone to becoming too distracted and thus starts missing valid trades.
How To Avoid Overtrading on Quiet Trading Days – Final Thought
Markets reflect life…at least for myself as a trader. The ups and down, the trials, having to make money to pay bills each month, the emotions, and having to keep it all in check is just like everyday life. I am not sure if this is the case for money managers or brokers, but for those who make a living simply from trading I definitely think it is true.
Some traders could care less about the internal work, and just work on strategy and grinding through. For some this may work out fine, but for others it will result in burn out. Others of us feel compelled to do the internal work–regardless of whether we are trading or not.
It is about understanding who we are, and incorporating it into our trading…and life.
Cory Mitchell, CMT