4 Tips to Avoid Overtrading

Overtrading is one of the most common mistakes traders make. Especially for newer crypto trades, knowing when to stop trading is a valuable and difficult skill to master. It can be hard to sit and watch the market without being in any trade, and it can be equally hard to not take too many trades when the market seems hot. What are some early symptoms of overtrading? And how can traders of all skill levels avoid it? The answers are in this blog post. 

The Definition of Overtrading

Before someone can stop overtrading, they need to know what it is. But that isn’t as easy as it seems. Every trader can have a different definition of overtrading because it ultimately depends on their style and the circumstances of the market they’re trading at a given point in time. Generally, traders know they’re overtrading because they can see it or feel it in their decision making. But few traders choose to be honest with themselves when they’ve reached the overtrading stage. And that leads to the first tip for avoiding overtrading. 

Traders Should Know Themselves

Any trader who does not deeply understand their own thought patterns, emotional states, and psychological weaknesses cannot consistently beat the market. Fear and greed are the root causes of most trading mistakes, and overtrading is no exception. When traders become too confident or too desperate, they will inevitably start to take too many trades. For example, a trader can ask themselves whether they’re feeling confident (which is good) or like they’re in God Mode (which is bad). One of these emotions leads to profitable trading while the leads to overtrading and losing money. Great traders realize that they need to study themselves and fight their instincts to avoid falling into emotional traps that lead to overtrading. 

Stick To A System

Overtrading or undertrading are two traps that traders fall into when they deviate from their trading plan. “Plan the trade and trade the plan” is timeless advice for good reason. An important part of any trading system is also having specific expectations for how many positions a trader wants to take depending on whether they’re extreme scalpers or long-term swing traders. For example, Peter Brandt says that more than three trades per week is overtrading for him. Many crypto traders might laugh at that number, but it proves that he understands his system and sticks to it. If a trader deviates from their plans, it usually leads to overtrading. 

Tools like Coin Market Manager are helpful for creating a trading system and sticking to it. The analytics and journaling tools inside each dashboard also help traders decide when their system needs improvement. All traders should constantly study and refine the results of their system. 

Ignore The News

News events are also uniquely designed to encourage overtrading from market participants. In general, news that moves markets is noise and is irrelevant to most traders. Unless a trader’s system is specifically designed to monitor and react to news, then paying attention to headlines and commentary in an effort to beat the market at a game of speed will usually end poorly. If traders are reading the news and losing money, maybe they should try ignoring the news and seeing if their performance improves. 

Zoom Out

One of the easiest fixes for overtrading is switching timeframes on the chart. Instead of reacting with strong emotions to something on the 5 minute or even 15 minute chart, traders should make a habit of zooming out and refreshing their perspective on the market. The result is that the market starts to slow down, a trader’s emotions will subside, and then they can make better decisions with their money. Zooming out is also important because traders need to select timeframes that influence their bias (usually higher timeframes) and timeframes that help their execution (usually lower timeframes). If greed or panic start to take over, traders should simply zoom out. 

Beating The Urge To Overtrade

Bad news for new traders: the urge to overtrade never disappears. But successful traders continue practicing at controlling and ignoring this urge. Only take good trades because bad trades usually mean a trader is overtrading. But what a bad trade means is dependent on a trader’s system. So the solution to overtrading is really to understand the self and prepare a strong system, then sticking to it.