One of the common themes of successful traders is that they are patient and wait for high probability set-ups to occur. Then they take advantage of those set-ups.
Many aspiring traders don't reach professional levels because they overtrade. They feel the more they trade, the more chances they will have to make money. This is incorrect.
Here are the following three ways to diagnose whether or not you're overtrading. Here's what non-successful traders do and you want to make sure you're not one of them
They're looking for action. Meaning instead of following a high probability trading methodology, they're taking trades on hunches with no statistical edges.
They subscribe to multiple newsletters (most without written, fully disclosed, track records) and they are at the same time watching the business channels looking for hot ideas. How is this any different than going to a racetrack and buying all the tout selections and also asking strangers "who they like"?
They trade for the rush. The more trades they do the better they feel. Behavioral psychologists refer to this as compulsive behavior and it's a serious weakness in any profession or activity.
The good news is that traders like this have existed since the beginning of the markets and will be there forever. They often provide the high probability opportunities by emotionally reacting to prices, allowing markets to become even more overbought and oversold and providing the edges for those who are on the other side of the trade.
If you see yourself doing any of the above, learn to stop by keeping a journal which allows you to constantly monitor and reflect upon your behavior in order to change it. And if you are solid with your discipline and the above is not an issue, you're in the very good position to take advantage of the many traders who do overtrade.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.
