If you are new to trading - particularly day trading or swing trading - then be careful not to overtrade.
Even if you have been lucky enough to get a slew of winning trades in a row, you need to keep your head up and adhere to your trading plan.
Going against your initial trading plan can prove to be detrimental to your trading life.
Overtrading can be one one the biggest reasons for traders going bankrupt.
This is because their minimal profits are no match for expenses such as slippage, commissions and other expenses that eat away at your capital.
Studies suggest that at least 90% of traders trade too often.
How Overtrading Can Become a Mindless Habit That Should Be Avoided Many traders have a mindset in which they must put on a trade every day, at least a few times per day in order to be successful and profitable.
This can't be further from the truth.
You do not have to trade every day.
The only time you should enter a trade is if the exact set-up that you are looking for comes up, and if your capital permits it.
Trading constantly won't necessarily increase your odds of making a profit.
Overtrading can be a dangerous problem that you may not even be aware of.
In your mind, you may have convinced yourself that a certain trade was tradable - when it really isn't - just so you can justify entering that trade.
You need to learn to avoid this habit.
Overtrading Takes Many Forms You can over trade by entering too many trades, trading too many shares, or using too much of your capital.
You shouldn't risk more than 2% of your trading capital on any one trade.
You also shouldn't enter so many trades at once that you find it difficult to manage all of them at once.
You need to be able to get in and out of a stock sometimes within seconds.
Each trade is different, and must be weighted based on how profitable it can be.
Don't enter a trade until all your criteria are met and are jumping off the screen at you.
You want to be in the game as long as possible.