Tuesday, June 14, 2011

Checklist for preventing overtrading

Over trading kills. Over trading destroys profits. It leads to revenge trading and chasing moves on impulses (urges from  afraid to missing a move, to being greedy and not taking profits). Here's a checklist that I need to go through every morning/ every moment during the trading day to making sure I'm still emotionally stable to continue trading:

  • Have I had a good night of sleep?
  • Did I come in prepared? Or before each trade, do I have a clearly defined risk/reward plan before entry?
  • Am I trading for action or based on sound risk/reward? Do I have an edge? Is the edge big enough to warrant a risk of capital?
  • Am I adapting to the day's market / stock condition? Is it a trend day? a gap day? a consolidation day? Is it in no-man's land?

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