Friday, December 15, 2017

4 Steps to Avoid Over-Trading | Trading Psychology

Today’s Trading Psychology question of the day…

“I can’t seem to stop over-trading.  I don’t know whether it’s my emotions, or maybe my personality isn’t meant for trading?  Maybe I shouldn’t be a scalper?  Whatever the problem, I can’t seem stay patient because at the end of each day the only person who’s making money is my broker.  Is there any easy way to stop over-trading?”

This is a great question, and I’m sure a lot of people watching this video have dealt with the problem of over-trading.

In today’s psychology lesson, I’m going to give you a strategy with four (4) tricks that will make it easier for you to kick the habit of over-trading.

But before I go into today’s lesson, I want to remind you to subscribe to this YouTube Channel, and make sure you adjust the settings in YouTube to alert you ever time I post a new video… and if you really want to stay in-tune with what’s going on here at SchoolOfTrade, join our mailing list on the homepage of our website, or in the upper-left corner of my blog at

So, let’s get into it…the question of the day was… “how do I stop over-trading?”

This is a relatively easy question to answer… “you don’t know you’re niche.”

Remember, trading, like most small businesses, only requires you to master a few certain set-ups.

The reason why most successful traders are successful is because they find a specific niche and they invest all their time in mastering how to trade it correctly…

…in other words, successful traders don’t try to learn everything, they focus on a few specific markets and a few specific set-ups.

The easiest way to avoid over-trading is to clearly understand your “niche”, or your “sweet spot”, whatever that may be.

I did a video a few weeks ago which was titled, do you expect to win, and in that video I talked about preparing for a few specific situations each day, in other words, defining your niche, and mastering those set-ups to avoid the problem of over-trading.

So, if you want to stop over-trading, the best solution is to clearly define that your niche in the trading industry is going to be.

So how do we define our niche?

Define Your Niche:

When I say “define your niche”, I’m referring to four (4) specific categories of trading.

1.      Specific market or asset class
2.      Trading Strategy
3.      Chart timeframe
4.      Decision-Making Rules

Let’s take some to think about these four aspects of defining your niche!

Specific Market (or) Asset Class:

First, let’s talk about defining the specific asset class or market that you’re going to focus.

Every market has a distinct personality to it, such a volatility, structure, liquidity, etc. 

Furthermore, some markets open at midnight, while other market don’t get moving until middle of the morning in the US.

To be a successful trader, you want to find a market that fits your time zone, and the volatility, liquidity and market personality fit YOUR individual lifestyle and personality.

A good match will produce good results, whereas a bad match will produce bad results.

For example, I’ve learned over the years that the energy markets (Crude Oil & Natural-Gas) have a distinct personality that really works well for me, and they open @ 9am EST which is a good fit for me living on the West Coast of the US, whereas other markets, like markets in Europe, or slower-moving markets like the Bonds, they just don’t fit well for me.

There’s no right or wrong answer to this question, some people just “read” certain markets better than others, and that’s all that matters. 

Your job as a new trader is to try a few different markets on a simulator, see what types of markets work best for YOU, and focus 100% of your energy on those markets.

Trading Strategy:

Once we know the specific markets that we’re going to focus on, let’s move to the strategy…

Every trader needs a strategy, which will help them find trading opportunities based on the rotation between support and resistance, supply and demand in the marketplace.

There are literally thousands of different types of strategy you could use…

Some traders like to follow the long-term trend, while others focus on short-term market psychology. 

Some traders like to pick tops and bottoms, trading more like a contrarian, while others watch divergence between related markets, or they trade the spread, or they are trading rapid-fire with high-frequency. 

Some people just can’t trade on a longer timeframe because they talk themselves out of the position, they can’t sit still, whereas others traders struggle with the fast-paced movement of short-term trading.

Again, there’s no wrong answer to this, but if you’re going to be successful, you need to pick a trading strategy that fits your personality.


So, now we have our market, our strategy, now let’s nail-down the charts we’re going to use…

Chart timeframe is definitely an important aspect of defining your niche to avoid over-trading.

I know a lot of traders who like the idea of being a scalper, but when it comes down to following rules in a rapid-fire environment they don’t do very well.  You put them on a slower timeframe and it just seems to fit better.

I’ve also worked with traders who want to be swing traders, but they can’t stomach the idea of sitting through the volatility as the trade works towards their target.

Do you find it easy to hold positions for a few days?  Or does that keep you up at night?

Do you find it hard to keep up with the fast price-action on a market like Crude Oil, if so, maybe we need to choose a slower timeframe, take fewer, longer-term trades that fit your personality better?

Again, everyone is different, and you need to invest some time in practicing with different timeframes, which will determine the time period of your trade, and see what works best for you.

Once you combine the correct market, with the correct strategy, and the best-fitting timeframe you’ll find that trading will get a lot easier.

Decision-Making Rules:

Now let’s talk about the fourth step defining your niche, and that is your rules.

Some traders use specific rules for entries and exits (black and white with no room for interpretation), while other traders rely on their intuition. 

Some traders use their rules as guidelines, while other traders keep them very strict. 

Some traders do hours of research before they take a trade and then set the trade on auto-pilot from there, while other traders allow the most recent price-action to determine their next move. 

The market that you trade, the timeframe you use, and the way you make decisions all need to match your personality, your style of thinking, and most importantly, align with your personal strengths.

When done correctly, trading becomes easy and fluid for someone who is properly matched with their trading style, but when we try and trade a strategy that doesn’t fit our strengths, or requires us to work outside of our “sweet spot” we usually see disappointing results, and the work is quite challenging.

A good example of this would be in the sport of baseball.

For example, when I was in high school, I played baseball, I was a pretty good catcher, and when I was waiting to bat, my coach would always remind me to… “wait for my pitch.”

In other words, he was telling me to be patient and only swing at pitches that were the best for me. 

I knew from experience (from previous attempts) that I had a much higher success rate when I swung at fastballs than when I tried to hit a curveball in the dirt. 

My job as a hitter in baseball was then to swing at pitches that suited my strengths, and if I did that, I would be successful more often than not.  The same is true for my trading career.

When I trade a market that is well-matched for my strengths, I do well, but when I try to apply the same strategy to other markets (which aren’t well-suited) I usually lose money, and it’s much harder work.

Just like a baseball player, a wise trader will know exactly what their strengths are, and wait for opportunities to capitalize on them…

…it’s much easier to avoid over-trading when you know your niche, you know what you’re best-suited for, and that takes a little bit of time to understand, especially since there are so many markets and so many different ways you can trade.

In previous lessons, we’ve discussed how important a positive attitude and optimistic mindset are for a successful trading career, and it’s easy to see why that will be much easier if you can successfully match your trading strategy to your strengths. 

If you do it correctly, trading will be relatively easy and you’ll see positive development, but if you don’t, your trading will create distress, and that distress will manifest itself into poor decisions and poor results.

Your job as a trader is to know yourself, know your strengths, know you weaknesses, and focus on operating in an environment where your strengths are being used far more than your weaknesses.

You have to know when you’re operating in your niche, and when you’re NOT.

A common problem with new traders is that they don’t know their strengths yet, or they haven’t found a strategy that plays to their strengths. 

That’s like trying to hit a baseball with your eyes closed… yes you will get lucky once in a while, but overall your batting average won’t be high enough for you to be successful.

Another problem among rookie traders is that they allow performance anxiety to interfere with their decision-making stills, they take the wrong trades, outside of their niche, and they lose money. 

Then, when a good trade presents itself, they shy away from the opportunity because they are scared of losing money. 

This cycle of taking the wrong trades, which makes it harder to take the right trades, is one of the biggest challenges for new traders… and knowing your niche will help you avoid this problem.

What’s your niche?

So, what’s your niche?  What markets do you trade best?  What timeframes fit your personality?  If you could only trade one set-up on one market with one timeframe, what would that be? 

Have you ever gone back and looked at all your previous trades to see what’s working and what’s not?  Are you even keeping records of your trades?  Are you keeping your journal? 

Do you know the answers to these questions? 

I certainly didn’t know these answers when I started my career, but for some reason that didn’t stop me from donating my hard-earn capital to more experienced traders every day in the form of foolish losses that could have easily been avoided.

Remember, when we start trading we become owners of our own trading business. 

What’s the single most important factor of a successful business?  You need to do ONE thing really well, and only then can you think about expanding into additional products and services. 

If a business spreads their resources too thin, then they aren’t able to do ANYTHING well… and that’s exactly what happens when traders don’t take the time to learn their niche, and mastering the execution of that niche.

A wise trader, just like a wise business owner is always watching their performance numbers, properly allocating their cash, and staying in-tune with ever-changing market conditions. 


So, here’s some homework to help you stop over-trading…

Your homework is to first take a moment to define your current niche.  What market, timeframe, strategy, and rules are you using?  Let’s start from there…

Then, start using your trading journal to document each trade you take, using a simple marking system, which will help you identify your niche trades.

Each time you take a trade, I want you to label the trade as either a 1, 2, or 3 in your journal.

“One” trades are your best set-ups, your sweet-spot, your niche trade, something that will most often make you money.

“Two” trades are good trades, but they are using a slightly less-reliable pattern, or they don’t have the risk-reward-ratio you need to be a number one trade.

“Three” trades are those trades that might feel good in the moment, but they fall outside of your niche.  These are considered speculative or discretionary, they aren’t part of your trading plan, and they often result in losses.

Review these notes at the end of each day and the end of each week.  Focus on the winning percentages of the one, two and three trades, so you can actually SEE for yourself that it’s in your best interest to take only the number one and two trades.

You can also total your numbers at the end of the week, the lower the number, the better you did that week. 

For example, if you took 15 trades this week, and your score is 15 then you know you did a great job.  But if your score is closer to 45 then you know you need to focus on following your trading plan next week.

The goal of this exercise is to capture data from each trade you take and make it easy for you to see where your best trades come from. 

When you see the numbers for yourself at the end of the week, it will make it a LOT easier for you to follow your trading plan and avoid over-trading.

Another reason this is technique is so valuable is in the event you go on losing streak.  If you ever find yourself in a rut, you can scale back and focus on taking only the #1 trades.

In my experience, losing streaks happen when I get over-confident, taking trades outside of my niche, and if I have my journal and all the data collected correctly, I can quickly adjust and get back on track.

Wow… We’ve covered a LOT in this psychology lesson, so let’s do a quick recap.

The easiest way to avoid over-trading is to clearly understand your “niche”, or your “sweet spot”, whatever that may be.

We talked about four (4) ways to define your niche:

1.      Specific market or asset class
2.      Trading Strategy
3.      Chart timeframe
4.      Decision-Making Rules

We spoke about the baseball analogy, to “wait for your pitch”, and to do that, you need to take good notes in your journal so you actually KNOW what “your pitch” is going to be.

We talked about keeping “score” of each trade you take, labeling them as either a #1, #2, or #3.

By keeping good notes, you can see the winning percentages for each type of trade you take, and also you can total the numbers and see overall how well you’re sticking to your niche.

We also talked about how keeping these types of notes (1,2 and 3) you can refer back to your journal if you ever find yourself in a losing streak, knowing which types of trades you should be focused on.

Wrapping things up… I’ve taken too much of your valuable time…

I hope you found a ton of value in today’s trading psychology lesson…

…and I would love to hear from you about additional topics that you’re struggling with as traders.

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my next psychology video…

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend who can benefit from this information as well.

Guys…It doesn’t matter what market we trade, or the strategy we use, even the most experienced & successful traders battle with their emotions when there’s money on the line.

And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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