Advice from our head trader Jason Berry on how to strike the right balance between undertrading and overtrading.

One of the career killers for traders out there is not trading enough, especially in the beginning. But in the same breath, overtrading is also a problem that we as traders need to be aware of. So it’s all about striking the right balance at the right time in your career, in your trading day plan, and in the right markets. I will throw out a few thoughts on how to get the right balance below.

At the beginning of your career, you should be doing two things that pertain to over trading and under trading: 1. Doing tons of research and observation to build an edge in the market 2. Trading as much as you can to build up your experience of dealing with a trade. If you aren’t trading enough, you aren’t learning enough. So below is the list of reasons why you need to trade more at the start.

If you aren’t trading enough:

1. You aren’t getting enough experience by simply clicking the prices at which you want to enter and exit.

2. You aren’t learning enough about being in a trade and what you need to do.

3. You aren’t experiencing the emotional roller coaster of trying to run winners and cut losers and learning how to get better at it.

4. You aren’t developing your discipline to get out of a loser before it gets too big.

5. You aren’t developing a personal history or memory or journal with all the good trades to find again, and the bad ones you need to avoid. The more you trade, the more you learn which trades to take and which ones to avoid. You learn when are your best trading times. You build up a database. Without this, the prices and order book movement will remain a mystery. So getting enough screen time and trades off is essential in learning how to trade.

6. You won’t get enough opportunities in the day upon which to build your career. We generally go with 30-50 trades a day. Some of those will be exploratory trades, some will be layups, some will be trying to work into a position at the right price, exiting and then getting back in as you look for that good fill. Some longer-term traders will step in here and say you don’t need this many trades. But for our style of trading, the more opportunities you have the better your chances of finding winners.

How do I trade more?

1. Set yourself goals in the strategy or product you are trading. 5 trades in the morning, 5 trades midday, 5 trades in the evening.

2. Find additional opportunities, strategies or products to trade.

3. Do more research, analysis, and backtesting that helps get you a better edge so you can trade with more confidence throughout the day or during your key times.

4. Watch and observe your market more. Stop taking so many coffee breaks 😉

Once you have built up experience in clicking the mouse, observing the markets, identifying solid trade setups, getting good at dealing with the emotions and skills of running winners and cutting losers, it’s time to reduce your total number of trades, or at least become more clinical. Once you have your 30-50 trades a day, it’s time to make sure you don’t over trade.

Overtrading exposes you to bad trades, bad trading times, trading without edge, giving back your earnings, and unnecessary losses. Overtrading destroys your efficiency, increases your costs and lowers your net P&L. Yes, yes, yes, we all know over trading is bad, but how do we avoid it?

1. There are only a couple of things that help with overtrading.

2. Only trade when you have edge, in whatever form it is. If your edge isn’t present, don’t trade.

3. Stick to your trading plan. If you’ve done your analysis and research, you should know when your best trading opportunities are, just stick to your plan. Also, build something into your trading plan that helps you identify and reduce your over trading.

4. Learn to identify when to stop trading after a busy period. This comes with experience and work. With time, you will be able to identify that things have slowed down and you need to stop or be pickier in your trades.

5. Set up rules that stop you out when you start over trading and start having losing trades.

6. Build an indicator, technical, volume, volatility, etc. that you can use as a signal of when to stop or slow your trading.

Under trading when you start, keeps you from learning and getting enough opportunities. Overtrading during your career keeps you from reaching your full potential and causes unnecessary losses. Strike the right balance throughout your career by following your trading plan, trading your edge, and working on the various points above.

Are you an experienced trader? Did I hit the right points above? What did I miss? Post some comments and if you hit one that is good, I’ll edit the article and repost it.