The Cure for Overtrading

Discussion in 'Trading' started by Joab, Nov 25, 2006.

  1. Joab


    Like most traders I have suffered from this syndrome on and off in my career and I wanted to share a technique that I find very useful.

    Making the presupposition:

    Good Trading is simply Good Habits, the question is HOW do you develop a habit?

    Well one answer is repetition,

    Here is what I challenge you to do,

    Scale down to a minimum trade size and stay at this size until you are profitable for 1 entire month.

    Then scale up 50% of that size each profitable month thereafter.

    IF at any time you have 3 losing trades in a row scale back to the previous size until you are profitable for another 30 days.


    Start with $50 risk per trade once you have a profitable month at this level, then scale up to $75 risk per trade and at anytime during the new month you have 3 consecutive losses scale back to $50.

    Simple enough right?

    We have all heard it said 1000 times that trading is 90% psychological and I think 90% of the experienced traders in here would agree with this statement, this little technique (if you apply it honestly) will CURE you of overtrading.

    It never ceases to amaze me how many traders forget to master the basics.

    Happy Trades.
  2. ER9


    why did you choose 3 loosing trades in a row? i can easilly hit half a dozen or more loosers in a row and not from overtrading. should those three in a row be within a certain time frame?
  3. you know the perfect cure to overtrading is losing money continuously. Eventually you get the idea it doesn't work and get tired of entering lower probability trades.
  4. Joab,

    Interesting technique. (it would be good if your edge allowed you to march forward and take few steps back, as you illustrate with a "time-position")

    However, the market does not know your condition.

    Wouldn't it be awesome if you could apply this techniqe to a market condition? I am experimenting with this...a sort of a way to rank a trade..."work in progress"

    Michael B.
  5. Joab



    Of course you would need to tweak this depending on your style, a scalper on a 3 min time frame may need to adjust this accordingly vs someone like myself whom trades off a 15m chart.

    The principle is simple,

    Decrease size when losing and increase size when winning.
  6. Joab



    The logic is, that market conditions will take care of themselves IF your emotionally in control.
  7. ok I see..Thanks for the Thread :) I can't help putting this to my systems and evaluating strings of wins vs. strings of losses...but thats just me...I previously have done this forwards and reversed...I concluded that mathematically there is no increase in profitability...but to manage emotions may be another point that I did not consider.

    I suppose during the "walk back" you could look forward to again increasing, but then you continue to start over could really get a long profitable run which would really set the goal..You know Traders are really Freaks...

  8. Joab


    Sure but the point is to always only increase size once performance proves your edge is working optimally and more importantly, so are you.