Even One Trade A Day Can Be Over Trading

We had an interesting question the other day:

What would be a reasonable range for total number of trades per instrument for an active intraday trader? And is there a different range for something like a stock-in-play vs. SPY or EUR/USD? I’m working on discretionary trading along with algorithmic strategies and I just want to gauge your opinion on when I or the system would be at a level that would be considered ‘over trading’.

Rick Martin

It comes down to opportunity—discretionary or with a trading system. As a discretionary trader, if you wait for the proper setups, find the right risk/reward ratios, and then pounce when everything is aligned, the number of trades will take care of itself. How many names you can adequately trade will be a combination of your experience and your style. However, if you don’t wait for everything to align, or think you can break your own rules, or want to claw back a recent loss in spite of market conditions, you can be over trading with only a trade or two a day.
On the systems trading front, it’s a question of how good is your system with the names it is trading combined with current market conditions. If you have done your homework and have fully tested your trading system including slippage and commissions so that it makes money most of the time, then just let it rip. One caveat however—there are market conditions when every trading system does better, and times when it does worse. Think about monitoring the equity curve to tell you when to double up on position size and when to move on to other names, or even shut it down altogether until conditions improve.
Even better—have 2 – 4 different trading systems for different market conditions and/or asset classes, and you will likely do better than having all your eggs in one system basket.

Author:  Rick Martin

For more information or answers to your questions, email Rick at [email protected]

Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

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