Friday, October 12, 2007

How To Tell When You Guilty of Over Trading

How To Tell When You Guilty of Over trading.

The essential feature of overtrading is not the number of actual trades but your reasons and motivation behind each trade.

Confused? I shall explain further.

Overtrading becomes more apparent when in a Bull Market as the share trader is frightened of missing out or will rush into every reasonable trading opportunity that shows itself or that they can afford.

These trades involved are no longer based on money management or any risk control. Here are four main questions that you can ask yourself if you think you are overtrading.

1. Is each trade based on sound research and financial analysis?

2. Is each trade part of an overall management plan that is based on matching the trade with the risk involved?

3. Does each trade have clear financial objectives which determine your exit position?

4. Does each trade only use capital allocated from your previous trades?

If the answer is yes then the trade is being made for the right reasons and the right criteria.

If two or more questions are answered in the negative, then this suggests that your are overtrading and your emotions are in charge . Can You Guarantee Success Every Time You Trade?

The answer is a resounding NO! But you can maximize your chances of success.

Firstly have a look in the mirror. It will reflect your worst trading enemy, ourselves. But most of us will blame other circumstances for our failure in the market. When in reality it is our in ability to take losses over trading.

What Steps Can We Take to Complete a Successful Trade?

1. Identify trading opportunities.

How do you do this? Usually it is done by three ways. You have the option of using a database scan using a software program or by using eyeball verification of bar charts and using indication verification using the Macd, Rsi or your own favorite indicators.

2. Analysis of opportunities.

A. Check for bias.

B. Assess stop loss conditions.

C. Assess profit targets.

D. Rank by time / risk.

3. Trade Management of our Portfolios.

A. Watch the depth of the market on your entry. B. Place and execute the order. C. Enter details in order log. Print out chart with summary trading plan.

D. With your open positions (trades) each day you verify the original trading conditions arc intact.

E. Enter details into trading record and file contract notes.

Christopher Strudwick is a keen amateur investor on the Australian Stock Market. Visit his weblog for more free articles and useful information at