How to Stop Overtrading: 3 Simple Tips You Should Know
Too extreme things are not good. Overtrading and micro-management are common but costly pitfalls that traders stumble into, both beginners and experienced traders. It proves the existence of trading addiction.
When trades seem to go well, we tend to hold on with the expectation of earning more. Yet, it usually ends up losing heartbreakingly.
Meanwhile, if trades seem to decrease in value, we are prone to quitting with the belief to minimize losses. Then, things can turn, and losing trades can become profitable, all of a sudden. We might lose the chance of winning back huge profits.
So, it is crucial to learn timing skills for your trade starts and stops. In other words, when to trade and when to stop are the bare essentials for every trader, yet the knowledge is overlooked.
This article suggests some effective approaches to help you avoid overtrading and micro-management. As a result, your trading income increases no matter how chaotic the market can become.
Establish and Follow Your Rules
How can you stop yourself from the loop of trading ‘dopamine’, even if you are losing or succeeding, when things keep renewing themselves in the market?
The solution is simple — setting up and following rules. It is easy to swim in the ocean of information and addictive trading flows. Yet, it is challenging to objectively keep track of your trading performances and have timely exits before losses get bigger.
As a result, principles or a set of rules can be the guide through the darkness. Based on your rules, you will know when you should start or stop your trades to reach the target or prevent painful losses.
The elements you can take into consideration to build up your own rules include risk tolerance and risk capacity. These two terms are essential to keep track of risks while trading in a tumultuous market.
Risk capacity points out the necessary risk you should undertake so that you can reach your financial goals. Meanwhile, risk tolerance refers to how much risk you can take or how many losses you can stand against while holding.
For example, the risk capacity of a trade can be $500 with a holding period of 2 days. Yet, your risk tolerance stops at $300 in the same period. So, it might be better to keep it low from the trade.
Besides, the 80/20 rule is another good reference. It states that roughly 80% of consequences can come from 20% of causes. Simply put, 80% of your trading profits come from 20% of your trading time. The core concept here is to prioritize the most impactful tactics that lead you to the winning land.
But at the end of the day, the rules should be the ones you strictly follow but feel comfortable with. There should be a balance between self-discipline and suitability with your style.
Find Another Hobby That Should Not Be Trading
Hey, trading is not the only thing in your life. Harsh but true that the world will not collapse when your trades fail.
We all try our best to upgrade our lives to the next level. Trading is now one of the effective ways to enrich our accounts. However, some people might take it as the only way to do with their lives. They spend all time they have including their sleep on trading.
Yet, life is much more fun than that!
Finding something that relaxes your mind and spares you some time and space to breathe in and out the taste of pure joy without calculation.
You can run an online business of the things you love, such as crafting, perfumes, paintings, etc. Or, taking a walk around the nearby park, reading a book, traveling, writing, etc. can be another choice.
What we can see in the world. If you only see the dancing numbers of stocks, crypto, NFTs, etc., your world will be just like that. So, expand your horizons with more activities that can be fun or relaxing to keep you away from monitoring screens for a while before getting back to the mind game.
Turn off Monitoring Screens
Yes, I know it sounds dull. However, you can keep track of your trades 24/7 but the profits you gain can be the same or even worse than the ones who monitor for a specific amount of time per day.
This tip can be more like a result of the previous two suggestions than a method. When you have a matching set of rules, you can have an optimal stop. Moreover, hobbies other than trading can save you from overtrading and can be a shield against trading addiction. It all comes back to trading psychology and the way you work with your mind.
So, what do you think? Have you ever got in trouble with overtrading? Have you had any solutions? Don’t hesitate to share with us in the comment section below. Can’t wait to read all of your sharings.
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