I'm a new trader at a prop firm and am having a problem with overtrading. I am trying to be patient and wait for a trade to develop, but as I'm sitting in front of the computer and seeing the price move, I feel that I should be in to take advantage of the movement. I will see it move 20 cents and say, "I was thinking of shorting at the beginning of the move and I would be up $60 by now (I only trade up to 300 shares at a time)." This occurs throughout the day, but there are a couple trades per day that I feel good about and am confident in and they work out more than 50% of the time. I guess I'm wondering what others have done to overcome the thoughts that you should be in the market all the time to take advantage of the moves. How were you able to learn to be patient? Thanks
I've done the same thing with one adjustment that seems to work for me as follows: In preparation for the next trading day, I take the following steps 1. I analyze the previous day's price activity, noting the opening range, and any breakouts that occur in the first hour. 2. I characterize price action after the opening range as range, congestion, or trending 3. I write a comment regarding the way I managed the previous day's trades. 4. I write a script for the next day that includes an "opening range" trade and a "breakout" trade. I include entry instructions and exits based on the way that price acted at previous important price levels (previous day's high/low). This seems to work quite well for me in that I have very little emotional involvement in the next days activity. I am just executing the script. After I am done, I analyze that script and look for ways to improve my strategy. I have noticed that since I have done this, my losses are cut down substantially, and for the first time, I am able to hold a position ("let profits run"). Since stops are predetermined, I know what I can expect to lose. It is like pulling the handle on a slot machine. Hope this helps. Good luck, steve46
By the way, once you find a way to handle this problem you still have to determine if your method (your system whether discretionary or mechanical) is profitable. If you find that you are having problems with that part of your trading, I advise you to become familiar with some method of characterizing the market's price action. I say "characterizing" rather than backtesting because in my opinion, most of the folks who "backtest" are missing an important point. Future price action does not have to match up with historical price action!!! In fact, it often does not match up very well at all. My best advice is to become adept at using Excel to import price data and simply characterize the way price moves during short slices of time (30 to 60 days for instance). If you get good at this, you will find that there are "edges" (tendencies) for price to move predictably during the day, and this is your key to making a profit. All you have to do is isolate these temporary tendencies, and trade the hell out of them until they stop working. If you don't know how to use Excel, take a class at your local community college. Best of luck to you, Steve46
If you don't mind, can you give an example of an "edge" that you figured out while analyzing price data.
...in defense of backtesting, done properly, tomorrow IS like today and yesterday. Your comment, IMO, indicates that you don't know how to backtest, and could bias the inexperienced reader toward the boundless sin of discretionary trading. Repent! Go ye forth and sin no more!
This man speaks words of pure gold. Back to your original question of overtrading: it's something that takes time to fix, that you have to really work on. What's worse is, you are the only one who can figure out how to fix it. There are a million reasons why you could be overtrading and you've got to analyze what you're doing and come up with fixes. One good way to analyze your trades is to mark them on a full day's chart after the trading day. Check out my journal entry today, i've charted 4 bad trades and two reasons I should have known at the time not to make them.