Confidence & Overtrading: Guilty as charged!
How frequently traders open new positions is defined by the trading strategy and market approach. Sometimes, especially in a bull market, it is tempting to open more positions than usual, which can make even experienced traders lose money. Some other times, the best trading decision is not to take any new trades at all. So how much trading is actually too much?
The most reliable indicator in that regard is overconfidence. Having a certain level of confidence is essential in trading. When, however, we get to believe that our success is due to our genius, rather than our carefully thought and tested market approach, we are prone to deviating from our strategy in the hope of larger profits.
Bottom line: Before deciding to adapt your trading strategy and put on that extra trade, how about remembering the reasons that made you deploy this particular trading strategy in the first place? Rules
are rules for a reason!
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