. . . . . . . . . . . . . . . OVERTRADING. . . . . . . . . . . . . . .
In this "wash and rinse" market cycle, the WORST thing one can do, is to "overtrade." Overtrading is what you do when you leave your master plan and trade for other reasons. . . then work backwards trying to justify those trades. Overtrading is when you are accustomed to profiting from long-term trading and find yourself position trading out of boredom.
An excellent position trader, may be a terrible swing trader. They are not all that similar, as swing trading is closer to daytrading. When a particular stock is cycling every few days or even hours, and you try to time entry and exit points, the chance of your picking both are slim. . . and even if you pick it correctly, the chance that you get it right twice in a row, are even slimmer. Whether or not you realize it, if you are timing every move. . .even overnight or over several days, you are day/swing trading.
And if you are NOT a daytrader, but find yourself dabbling in daytrading during these summer months for whatever reason. . .STOP IT. If you are not set-up for professional daytrading, with instant point and click execution, level II quotes, dynamic real-time charting, real-time news and huge margin accounts to trade long and short simultaneously [yes, even on the same stock]. . . with at least 200 successful daytrades under your belt. . .you will most certainly lose.
There is simply too much daytrading competition for the inexperienced to be successful. The fool and his money are soon parted.
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"So who wins?"
Market Makers win in the wash and rinse cycle. . .because they KNOW direction and timing and most importantly, trade balance. . . .YOU DON'T.
Brokerage Houses win from the continuous churning of the same stocks. . .and the commissions that follow. . . and the dumping of old inventory into artificial strength. Look at your monthly statement. Overtrading? Do you even know how much you paid in commissions last month?
Corporations, especially high-tech internets, win and are making more money than they can even count. . .[which worries me some that they may get so greedy that they lose their focus on increasing investor share value.] Also, watch for dilution during summer months.
Professional Daytraders that adhere to a very strict discipline of trading 8ths and 16ths can win big. . .especially with the growing number of inexperienced traders.
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"And who loses?"
Everyone else? Perhaps. Those that are inexperienced to moderately experienced traders and those that are not sure what the market will do next . . .lose. Those that took their profits at just the right time in the spring, but are getting bored pruning roses, so they find themselves throwing money back at the market. . . lose. If you find yourself desiring to change trading strategies this month, but cannot explain exactly why. . .you may be setting yourself up for a loss, without realizing.
The wash and rinse market cycle is like walking a tread mill. Keep walking and you get nowhere. Stop walking and you fall off the end.
The best way to play? Don't get on in the first place.
There is nothing wrong with keeping those profits tucked safely away until you are certain you are ready to begin taking new positions. There is no law that says you must stay fully invested at all times. . .and if it is a tax break that concerns you, perhaps hedging with short plays is the answer.
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“Let it ride”
If you feel the need to gamble, take some of that money and fly to Vegas, Atlantic City or Tunica, MS and get it out of your system. . .
Get the gambling out of your system. Losing a thousand bucks in Vegas beats losing tens of thousands by gambling in a turbulent stock market.
If that doesn't work, call gamblers anonymous. You may have a problem.
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“How many eyes do you have?”
If you are attempting to "swing trade" too many stocks at a time, you may, likewise, be setting yourself up for disaster. Keeping your eyes on the trading patterns and quotes of a single stock may be fairly easy. Trade two stocks at the same time, and you cut your chances of winning on both in half. Trade three or four stocks at the same time, and you can see how your chances of seeing a gain on all of them are reduced dramatically. You will be lucky to win on any of them.
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"Silly clichés can help"
You have PLANNED YOUR WORK, now WORK YOUR PLAN. Resist the temptation to trade out of boredom. Pigs get fat, hogs get slaughtered. And if your trading strategy, that you spent perhaps YEARS developing, works. . . DON'T FIX IT.
Yeah, you've heard it before. But sometimes these clichés can take years to truly understand. . .and even longer to apply. Applying these simple 'disciplines' about overtrading, can make the difference between a profit and a loss.
As a composer, it took me many years to fully appreciate this next cliché, that equally applies to trading stocks:
"LESS IS MORE"
This is the BOTTOM LINE in trading. . . .more or less. . . . <g>
Yeah, "less is more" sounds easy enough, but the BIGGEST gains that I have had or have seen others get, have been by the LEAST amount of trading. All those that screamed about selling too early overtraded. . .but those that stuck to their plan with unwavering conviction, went home with the biggest smiles and fattest wallets.
The Long Portfolios that I assembled 6 months ago have seen some amazing gains, easily beating even the best mutual funds. . .and I am talking about ZERO trading, even through the big sell-offs. Now THAT is "Less is more."
Year-To-Date:
techstocks.com
Winter 98 Long 1.0 - Part 1:
techstocks.com
Part 2:
techstocks.com
If your own TRADING portfolios over the same period of time, have not OUTPERFORMED these "untraded" portfolios, then you may have needlessly overtraded.
Rande Is
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<c> Copyright 1999 Rande Is |
