Money Management – How to Avoid Over Trading
Expert traders and the top stockbrokers said that there are only two important things to success in trading, a good strategy, and an excellent money management. Almost each trader has learned the hard way, after losing big amounts of money to implement and follow a money management plan, and to avoid over trading. After hundreds of brokers’ reports, there is one culprit for most traders’ failures, and it is over trading.
What Is Over Trading?
Over trading is taking more trades than previously planned or needed. The over trading concept does not depend on the amount of trade per day or week. It means that a trader is making a significant amount of trading above and outside his trading plan and usually against his money management scheme. In an over trading state the trader is acting without any strategy or trading plan, he is just following his emotional response, and he is reckless trading.
How to avoid over trading
Make a trading plan the importance to make and follow a trading plan is above any recommendation you can get. Self-discipline and clear goals are critical to be a successful trader and maximize your investment revenue.
Establish your strategy this has to be part of your trading plan, but even if you do not have one. You must follow a trading strategy and trade only under your expected conditions, following the price and the indicator corroborations.
Keep a cool head after any significant losses or when the market moves faster than your analyzes capacity, avoid any unplanned trading. You have to remember that trading is based on pattern recognition, no in guessing or predictions. Therefore, you must trade only on the studied assets and under the expected conditions.
Set a shut-off amount, write down the maximum sum of money to invest and respect it. You should invest only your preset amount and never risk more than that.
Create your guidelines for money management you must follow to the letter your money management scheme. This plan must be reviewed periodically to be sure you are compelling to it.
Register each trade you have made; you need to keep a crystal clear record of all your transaction and its outcome. Strictly attention must be paid to the invested amount to respect the maximum amount to trade for the day or week.
Learn to cope with loss over trading is more frequent after significant or consecutive loses, You need to learn to deal with loss. Losing is a big part of trading, this is the reason number one for a money management plan, You don’t have to panic if you misread the indicator or fail to recognize a pattern. You have to go over your strategy and stick to your trading plan.If you trade without doing a technical or fundamental analysis, you are just increasing your risk to lose more money
In a nutshell to avoid over trading: You need to trade following your trading plan or investment strategy. Trading requires a strong self-discipline. Each trade must be done after technical or fundamental analysis, anticipate price movement direction depend on pattern recognition.