Tips For Avoiding Excessive Trading
by Ian HuntsleyWhy do casinos provide the winners and the losers with complimentary goods or services? Because both will continue to gamble more than the average person.
Despite the fact that the odds favor the house, the losers, desperate to recoup their losses, will try to ride out their bad luck by playing through it. The winners, convinced they're in the midst of an unstoppable streak, will try to ride it all the way to the top and invariably give much or all of their gain back to the casino.
Professional trading is nothing like gambling, but many amateur traders act as if it is, and trade excessively for the same reasons as an ordinary gambler. Every active trader should learn to trade, instead of gamble. Here we'll take a look at traders' tendency to trade excessively and examine the way this behavior can affect a portfolio.
Evolution of a TraderAs traders develop skills, each one travels virtually the same path: initially as a discretionary trader, then as a technician and ultimately as a strategist or systematic trader. A trader first analyzes the market direction or trend, then sets targets for the anticipated move. Correctly reading or predicting the market then becomes the highest priority, so the trader learns as many new indicators as possible, believing they're like traffic signals. This search for a magical combination of indicators leads to the inevitable realization that multiple scenarios might exist. A trader's focus then moves to the probability of each outcome and the risk-reward ratio. ..................
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