Today's Quote: “Conviction is worthless unless it is converted into conduct.” Thomas Carlyle.

Overtrading has become the number one demon for many traders. The reason is not hard to understand. A trader is over whelmed by the ability to buy and sell large shares of stocks in just a fraction of a second. They have without doubt done some trades where they made large sums of money, perhaps a former week’s salary, in just a few minutes or couple of hours. The thrill of this power is intoxicating and leads to a simple conclusion for many. Just keep doing it. The more you trade the more you will make. This is where the problem lies.

Trading is a process of finding a high quality technical pattern that has proven over time that the odds are slightly in your favor of taking a position one way of the other. No matter what timeframe you play, there will only be a certain number of high quality patterns available. Once those patterns are gone, the remaining patterns are lower odds. The right time of the day has passed, the market has already made its big move, the support area has already held, etc. To continue trading at that point is to take lower odds trades and to dilute (or reverse) your results.

Do you over trade? Have you ever been nicely profitable in the morning and given it all back by the end of the day? Have you ever noticed that the days that you have an increased number of trades are usually losing days? Have you ever noticed that some of your better days come from a few good trades that were not ‘watered down’ from the rest of the day? After a nice move in the market where you make good money, do you take a break, or do you sit there trading even more hoping that you will do it all again; that maybe the market will ‘double’ the huge move it just made?

Here is the bottom line. The odds are for most traders; a good week will consist of one to two ‘good’ days where all the money is made. There will be a couple of ‘tough days’ where breakeven or a small gain is all that can be obtained. There will likely be a losing day, where nothing went quite right. Now here is the key. Everyone will have winning days. That is right. Rookies, new traders, veterans alike will all have winning days. Good traders are not made by how ‘good’ their good days are. They are made by how ‘bad’ the bad days are. It is in how they manage those other days. Do the breakeven days stay breakeven? Does that losing day stay reasonable, or do they erase the week’s profits?

There is not room for error in your trading. Look at your records and ask yourself the questions listed above. You must follow a plan that allows you to strike at the best times, and lay low when the odds are low. You must overcome this psychological demon if want to survive.