One of the common struggles that most traders face is how to strike the right balance between overtrading and undertrading.

In today’s episode, we discuss how to define overtrading and undertrading so that you can better understand how each of them can impact your mindset and psychology as well as your trading account.

We’ve got you covered  too because we also speak on how you can identify overtrading and undertrading in real-time and some fixes you can implement to help manage the risk and keep yourself in that fine balance!

What is over trading and under trading in reference to?

  • The market conditions
  • High volatility means more trades
  • Less volatility means less trades
  • It’s important to recognize the change in volatility and to adjust accordingly
  • If a market range in the SP500 is 100 points….10 trades isn’t bad
  • If it’s in a 4 point range in the summer… 10 trades is too many
  • Remember – it’s always easy to call it over or under trading after the fact – it’s important to work on identifying it in the real time before it happens

Quick Tips on How to Measure volatility:

  • Every asset has its’ own personality and screen time will help you create a more accurate measure of volatility
  • Futures:  
    • overnight ranges – high and lows  (higher number more volatility)
    • Session trading volume
  • Stocks
    • 52 week price range
    • Implied volatility
    • Beta

What are the cons of overtrading? 

  • Abandoning the trading plan and trading emotionally 
  • Trading based on “feeling” versus trading based on a tested plan 
  • Eating up any profits with excess commissions 
  • Closing winning trades too early and/placing stops too close to entry > leads to increased number of trades and costs 

What are the cons of undertrading? 

  • Staying in a fear focused mindset – protecting capital and could be a sign of a scarcity mindset
  • Constantly missing opportunities which causes FOMO and can get you chasing right when you should be out of the trade  (trick yourself like you’re in mindset)
  • Opportunity cost of your capital, and most importantly YOUR time
  • Putting too much importance on any given trade – puts pressure and stress on having to be right all the time
  • Will say things like “my plan tells me to get in and I didn’t” or “Why didn’t I take that trade?” 
  • Subconscious mind might not believe the plan you have in place is the best plan for you

How Do You Identify Overtrading In Real-Time? 

Are you outside of your daily limit for trades? Is each trade according to plan? Am I trading the process or based on the result of the last trade? 

How to Fix Over Trading:

  1. Add another qualifier to your setup
  2. Set a finite limit of trades daily 
  3. Replay the days of over trading 
  4. Journal every single trade with screenshots and full explanations 
  5. Accountability Partner

How Do You Identify Undertrading In Real-Time? 

 If you miss two valid setups that you were unable to disqualify then you are likely undertrading the session. 

How to Fix Under Trading:

  1. Stop thinking so much
  2. Market Replays
  3. Journal the missed trades
  4. Start the session with the smallest size position
  5. Entry criteria might be too restrictive 


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