Over Trading

STEVE- Good evening! I have been enjoying my trial membership to the “Stocks in Play” feature of SMB, and I am considering signing up for the In play/Radar/Chat side of things. I have thoroughly enjoyed the morning meeting’s, and have really appreciated the information put out there. I came to know of SMB largely by reading “One Good Trade”, and learned a great deal that was applicable to myself in that book. I have been impressed with how your firm operates and the emphasis on coaching and improvement.

A topic I’ve been thinking a good amount about lately is “overtrading”. I think this varies from trader to trader, and I’m really trying to hone in on what “overtrading” is for me. I recently read the blog post by Bella about the “high motor trader”, and that applies to this discussion a little. I read an old blog post by Jtoma, and in that post he mentioned that “I traded in and out of AAPL close to fifty times today, and in reality, the stars only aligned, according to my system, 6 or 7 times.”

For myself, that is way more trading than I’ve ever done in a day, but is that necessarily right? Maybe I should betrading more? How do I determine this? Should I feel like I’m “overtrading” if I take 20 round trip trades in a day? I think I’m just trying to free myself up mentally, because I’ve felt the mental restriction of trying not to overtrade, and I’ve also traded freely taking the opportunities as they appear through the market flow not worrying about “overtrading”. Just trying to make some progress in this area psychologically, and any input you might have I would greatly appreciate. I sincerely thank you for your time….Rodney Antilla

Rodney, thanks for the feedback. Over trading is a negative habit that applies to trading in every time frame, but tends to rear its ugly head most often for the intra-day trader. This is due to the fact that as the trading time frame is compressed there is a greater chance of trading reactively as opposed to proactively.

I should also point out that there are two categories of “over trading”. One, is entering into trades that don’t fit into a pre-determined set of criteria that define a trading play in your playbook. The second is over managing a trade that you are in, and losing site of the big picture in the stock.

Here are a few suggestions to make sure you are trading proactively. First, develop a “playbook” of trading setups and ONLY make trades when a stock meets the criteria of this setup. Second, have detailed trading plans for each trade you are considering to avoid over trading this position once entered. Third, have a consistent review process that allows you to identify situations where you tend to over trade, as awareness is the first step in eliminating a negative habit.

The other thing you referenced in your email was the idea of the “high motor” trader. You shouldn’t confuse this with over trading. SMB seeks this type of individual as they will take full advantage of the skills that they learn during the training process. We want our traders constantly scanning the market for the setups in their playbook. The only restriction we place on them is to not “cover” more stocks than their mental bandwidth and experience warrant. Most traders with under a few years experience should be involved in no more than 10 stocks in one day and preferably no more than 5 if they are very In Play.