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Overtrading is but one of the common attributes of unsuccessful traders but its importance is high on the list and for good reason. Following are the signs that you may be a stockaholic, which is simply a person who is addicted to trading.
PLAYING TO WIN: THE MORE YOU TRADE THE MORE CHANCES YOU HAVE TO MAKE MONEY
Makes sense…on the surface. But is it correct? It is not like buying a lottery ticket where you can’t win if you do not play. I have never heard of anyone winning the lottery without a winning ticket! However, a lottery ticket will only cost you $1 and you are in the game. In trading, it can cost much more than a dollar and you can lose your shirt if your number is not the right one. Just because you are in the market does not mean you have a higher probability of winning. In fact, your probability of winning decreases the more you trade. If you run a 10 Year performance summary on my CROSSHAIR for GS for instance, the percentage wins versus gains when you compare a DAILY chart (which has fewer triggered trades) and a 60 MINUTE chart (which has almost quadruple the number of trades) decreases significantly with the smaller chart. I do not want to spend my time managing a low win/loss ratio just because I have to be in the market to win. You don’t have to be in the market. Some of the best money you will ever make trading is when you are not in the market. Marcel Link, in his book HIGH PROBABILITY TRADING puts it this way: “Since 90 percent of all traders lose money in the long run, it stands to reason that the less they trade, the better off they will be. If they cut their total number of trades down to zero they would improve by at least breaking even, which is better than most traders end up doing” (337).
UNCONTROLLABLE EMOTIONS
The market moves in mysterious ways. I have said on numerous occasions that in the market anything can happen and often does. The market does not make any sense from day to day so why spend your time trying to figure it out? The market is simply a large mass of emotional people trying to make money by following the direction of other emotional people. Those who overtrade cannot control the emotions associated with greed, fear, doubt, anger, etc. The result is a trader who trades for the excitement (the gambler); for fear of missing the move (the participant); for want of recouping quickly what was recently lost (revenge), etc. The list can go on and on. Trading is nothing if not an emotional roller coaster which is really exaggerated when money is on the line every minute the market is open. Trading less allows you to properly prepare for the next battle to come, both emotionally and technically.
THE NEED TO BE RIGHT
Good trading is not about being right, it is about making money. If you trade to be right you are most likely trading too often in order to 1) impress someone other than yourself, and 2) feed your ego. If this is your problem it mostly stems from a failure to focus on your trading plan, if you have one. If you don’t then you are really heading for disaster. Sticking to a well thought out plan of action based on a high probability trading edge will keep you from making frequent, unnecessary trades. This is where the professionals pull way ahead of the masses. The professionals wait for the market to come to them instead of chasing the market and in so doing they choose to make money instead of correctly indentifying what the market is going to do on any given day. They do not let “I told you so” turn into “what have you done for me lately.”
Are you a stockaholic? Be careful. The hangover could be much longer than anticipated.
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