How to Fix Your Overtrading (Once and For All!)

Overtrading is one of the biggest P and L killers and could be destroying your trading career. In this video, legendary eight figure prop trader Lance Breitstein breaks down the hidden root causes of over trading and provides a powerful cure. I'm Mike Belafury and we're one of the top proprietary trading firms located in New York City and proud to develop numerous seven and even eight figure per year traders. We hope you agree this is the top YouTube channel to help you grow your trading account.

One of the most common questions I get is always how do I fix my overtrading? I've heard this from professional traders, I've heard this from traders in Vegas at Traders for a Cause and and most recently I heard this from Omer, a young developing trader that I grabbed breakfast with and I totally understand why. I know how frustrating it is to not be able to cut yourself off. I know how debilitating this issue can be to our P and L. I've seen this be the ruining factor in many careers. In fact, I had one trainee in particular that literally could not stop himself from trading too many tickers and it was the end of him. I too am human and I struggled with over trading of all kinds. It sickens me to think of the P and L I squandered away over the course of my career. Keep in mind we will never ever be perfect. The goal is solely to reduce our over trading as much as we can. As fallible discretionary traders in this deck, I share with you the thought process and methods I used to minimize over trading and hold onto my hard earned P and L as tightly as I could. Many I've mentored have used these same steps to do the same. You can and will be able to get a handle on your over trading. So now it's my turn to make you all think. Let me ask you a question. I would say over trading is probably a top five most common issue in the trading world. If it's such a common issue, why aren't there any universally agreed upon solutions? Why can't I just give you a simple three step instruction guide to to fix your over trading? The reason why I think is because overtrading is not a single homogenous issue. People over trade for all sorts of different reasons. The good news though is that most people fall into common categories of root causes. It isn't until we identify the proper root cause that we can diagnose and fix this issue. So let's dive in. The absolute first question I ask traders with this issue is is the most important one, how do you know that you are overtrading? A lot of beginner traders make the very hindsight bias mistake of thinking that all the trades that worked were the ones they should have taken and all their losses were automatically over trades. Obviously, this is not how trading works. Before we go anywhere, we need to define overtrading based on that. Then I define over trading as the inability to stick to our predefined trading playbook. That definition actually brings us to the number one cause of over trading. Most traders don't have a predefined playbook at all. So if you haven't put the time in to define what trades you should and should not be taking, there is no way to objectively judge whether you should be taking the trade in real time or during review. The other beauty of having a playbook is it allows us to clearly say whether we should have taken a trade or not. Winning or losing does not define whether we should have taken it. Only our predefined criteria backed by data and experience does. If you look back and based on your strategy, you should have taken the trade because the variables lined up and you did it the proper entry and exit and it just didn't work out. That isn't overtrading. That's life and that's part of the job. So many new traders tend to conflate their losing trades with being over trades when that just isn't the case. So what's the solution to this? The solution is simple. You need to build your own playbook and begin defining the trades you have edge in and cataloging charts, variations and all sorts of these patterns so that you can really study and hone in on what's in your playbook. This is a concept Bela detailed in his book, which happens to of course be named the Playbook and a subject I'm going to dive deeper into in a separate video for you. All that's going to explain what I have my trainees do when they build their own. So let's say you pass the first test and you do have a playbook. The most common corollary of that top issue is some people do have a playbook, but their playbook just isn't specific enough. We know what types of trades we have edge in. Perhaps it might be IPOs or low float reversals or breaking news, but what we haven't done is put in the work to explicitly define the entries and exits. This isn't so much about what you're trading, but where you are getting involved in it. So many traders that fall victim to death by a thousand paper cuts do so because of this reason. They might be a breakout trader and only traded breakouts that day. But they don't have enough variables and rules built into their playbook to differentiate where they have edge from noise. So what's the solution to this one? It's to add more details into our playbook that define our entries and exits. How much consolidation must occur before we enter? What must the volume be like at the time of the breakout? What about volume on the day? What about the time of day or the overall market breadth? How about needing a fresh catalyst for the names? Or how strong or tight might that consolidation need to be? Maybe we only use and trade stocks that have retraced less than 25% overall. A lot of these rules and thoughts are some of the variables necessary to make our playbooks specific enough so that it really helps us in real time and prevents over trades. Because we just don't know exactly what our pattern needs to be for edge. Another common cause of over trading, to no surprise, really ends up being psychological. Especially if you have your playbook with specific rules for entries and exits. Most traders tend to find that their issues are because they violate those rules. When we end up needing to psychologically diagnose our trading, the most important thing we need is something that's extremely rare and difficult and that's objectivity of self. In identifying these following psychological reasons, we really want to be as conscious as possible when we enter a trade and when we reflect upon our trades. Are we rationally following our strategy? Are one of the following psychological issues coming into play? The first one is overtrading because we're trying to be right. This is where we have our playbook. But we violate it because we're steadfast that our view is correct. It's no longer about making money even. But seeing our view come to fruition as we frustratingly try again and again. Rather than trading what the market and the chart is trying to tell us, we are trying to force our view onto the stock and the market. These over trades tend to occur when we have a strong bias and as to what a stock should do. Perhaps we're playing analyst rather than trader. Perhaps we have an investment thesis on the name. Or perhaps we've previously been right in the ticker before, which can so often lead to overconfidence. The truth is though, a stock doesn't need or shouldn't do anything except for what the price action is saying. So what do we do? As with most things psychological, the answers tend to be more complicated. Here are some sample solutions that I tend to point people towards. First, you want to set safeguards as well as preventive measures to fight this bias. You might want to consider a rule for the max number of attempts in a ticker per day, or maybe even consider a rule for the maximum negative PL in a ticker per day. Another solution you can do is track data on when a bias affects our trading and see how that underperformance prevents us from being our best. Another thing is remove the source of bias such as no longer reading research reports or holding single name stocks in our personal accounts. You also want to divorce our need to be right and instead focusing on making one good trade performing practice reps solely listening to the chart and ignoring any views is another way. And finally making it our daily report card goal to to be conscious of only listening to the chart during trades. All of these are totally feasible solutions to begin tweaking and fooling around with for yourself. Another type of psychological over trade is the revenge trade. We have all done it before. The more experienced of us have done it many times. The oldest time revenge trade. You take a loss in a name or you get stopped out early by Candlewick only to see that ticker move in the original direction you thought it would. It is so so so emotionally painful to be right. But to have been stopped out of the trade and no longer along for the ride. Everything you thought would happen did were it not just for that one wick you would have been there. So now we need to trade on two times or three times our size to catch the rest of the move and make it back and then some. Right? Wrong. What most traders miss about revenge trades is that by the nature of us having been stopped out, the trade likely violated a key level we expected to hold and the trade itself is not as good as we first handicapped it to be. It doesn't justify a reentry at all or let alone the same size or more. Allow me to explain. The best analogy I can give is imagine poker having an ace king but then the flop comes out with a bunch of low cards that are all suited and someone is betting aggressively after. Essentially this is the exact opposite of what we want. So we rightfully fold, but then a king comes out next. Yes, this is what we originally wanted, but one we need to accept that we made the right decision given the information we had. And even more importantly, just because a king came out doesn't mean we shouldn't be scared of someone Having a three pair or a flush, given what occurred, the odds and expected value is way worse than what we first perceived when we entered the hand to bring it back to the trading world. We might enter a trade expecting a bounce and a level to hold. We might have data that says the expected value is, say $2. But if the trade violates that level and stops us out, it no longer is the setup we thought it was. And almost always that expected value is way worse for how the stock performed. Understanding all of that, what do we do to prevent this overtrading issue? Some solutions involve setting safeguards and rules to re handicap the trade and see if it is independently justified, as well as increasing our mental acceptance that stopping out but trading our system is a win. What happens after is irrelevant. So some things we can do for that is consider a rule for reducing our size after being stopped out by a ticker. We could also consider setting rules for when, how and for what size we'll be allowed to re enter a trade after a stop out. One other solution is training yourself to re handicap the trade using often more accurate assumptions that reduce the potential win rate and potential reward. One other solution is to ask yourself whether you'd be taking this trade if you hadn't previously been stopped out. And finally, much like with poker, if we make the right decision to fold our hand, it doesn't matter what card comes out next. Acting otherwise is silly. It's the same with trading. We must view a good trade based on whether we stuck to our system, not what happens after. Another psychological bias that leads to over trading is the good ol FOMO trader. My old friend fomo. I recall well that pit in my stomach when every trader you know is jacked short a ticker and the ticker is just melting as if $0 is its destiny. It didn't set up for your playbook, but that doesn't matter. That feeling is sickening. The thought of how much size your friends must have and all the huge P&Ls they'll be posting to Twitter or texting in the group chats later. With every tick your stomach drops further and finally you capitulate and join short right at the bottom tick before it rips higher against you. Oh how many times I have done that and cursed myself for how stupid I am after identifying. These tend to be easy, but preventing them requires a lot of environmental controls. Some of these solutions involve removing the triggers for FOMO and and tilt and then developing the mindset to focus on yourself and your own process rather than the actions of others. Some suggested ideas are muting certain Twitter accounts or group chats during market hours. You could also ask your friends not to share positions with you except for review purposes after the trade. If tilted or feeling fomo, you can create rules to take a walk or log off until feeling emotionally even again. Getting outdoors tends to help a ton of utilize your emotions as an indicator that pit in your stomach that might mean it's time to type away the ticker and focus elsewhere or take the day off. If we can't focus, we really want to reflect on why other people catching a trade bothers us. How can we learn to be happy for them and view it as a learning opportunity to pick their brain? All of these things over time, while not easy, will help us prevent those FOMO over trades One of the final ones I'm going to discuss is the classic boredom trade We've all done it or bored and sitting in front of a casino all day, right? Might as well roll the dice because it's right there in front of us with the green and the red and all the action of Vegas. It might satisfy the part of our brain that needs action and can't handle uncertainty or that stillness, but it isn't a profitable practice. These trades are most common midday or on days that are lacking opportunity. What type of trader do you want to be, though? Does taking haphazard subpar trades rather than doing some R and D work take you closer to that trader you want to be? I don't think so. My recommended solutions for boredom trades include setting safeguards to limit damage on the slow days, as well as coming up with productive work we can do in place of those subpar trades. Some of these safeguards include setting a max number of trades you can take each day unless all were justified and you give yourself permission for more. Using a daily report card pre market to check in to assess how active the day might be and how many tickers we might want to trade is another productive process practice. One other is being aware of seasonal patterns and slowness, for example during summer or market holidays. We also want to be aware of slower periods during the day and utilize those for productive RD work or taking a walk to refresh ourselves. One other idea I've fooled around with is developing a meditative practice during slow periods to improve our focus and consciousness. Slow, boring periods doesn't need to mean no work, it just means no trading if there's no edge. One final idea I'll propose to is setting give back rules for how much P and L You can give back on the day before you cut yourself off. So one thing that I'd be remiss if I didn't touch on is a few contributing variables that make all the overtrading issues worse. These are the overtrading amplifiers and unsurprisingly, they all have to do with not being in an optimal mental state. These are as follows. They're poor sleep sickness, distraction, or anything that's going to pull you from an emotional equilibrium. Maybe you're dealing with home issues, family issues. Maybe for some reason you're angry because of traffic on the way to work. For whatever reason, you're not in a cool, calm, collected, even emotional state. So what can we do? As usual, we can set rules for when you're not in a proper state to trade, to prevent damage, and then build processes to make sure we're coming to the job and at peak mental performance. One simple rule is no trading. If sick, exceptionally poorly, slept, angry or distracted, or what we can do is if we're a little off kilter, we can reduce our risk limits. If not in an optimal state, we can also set rules about no drinking or late night antics during the work week. Or if finding our mind is unfocused or foggy during the trading day, we can step away and take a walk, have a nap or or do some kind of reset if to no avail. Sometimes we need to just call it a day. One other cool trick I used to do is I would track my sleep using an Oura ring or using like a whoop or an Apple watch. And then I would use that sleep score as an input in my pre market prep. A lot of these solutions all help you prevent times trading when you're not at your mental best. So often that will amplify the over trading reasons that we discussed before. So what are the caveats? I want you to keep in mind that these causes and solutions are not exhaustive. I'm not sure it's ever possible to be exhaustive in either of those areas. We all are unique, complex individuals. But this train of thought will help you to dissect your own over trading issues, objectively identify it, and build solutions to tackle it once and for all. It's also worth pointing out that often there were reasons for overtrading might change based on the situations or over time. Sometimes we trade out of the desire to be right, other times we trade because we haven't defined our playbook specifically enough. We must really objectively dissect each individual trade at the end of the day if we really want to get to the root of our problems, I hope these examples and proposed solutions help you dissect your own reasons for over trading. Don't expect perfection. Because we are human discretionary traders, all we can ever hope for is to be better than we were the prior day. Good luck and let me know what's worked for you in the comments. Thank you so much for watching.

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