An Argument for Why Not Trading Much Makes No Sense

So I work with a trader who started very well. I was very happy with his progress. He was consistent with his results. Steve frequently would remark at his over-performance given his experience. And then recently he has not traded well.  So much so that yesterday I wrote him this email:

Hey, what is going on w u? Something bothering u in your personal life? You went from great progress to honestly u suck.

Today after the close, with his review, he responded……..


Sucked less today :).  In all honesty there are no troubles going on in my personal life. …I’ve been more quiet than usual just because my confidence in my trading has been down a bit. Besides the first day of the month, last Friday, and today I’ve been really disappointed in my trading as of late. What’s been frustrating me more is I know it’s earnings season and I feel I’ve been putting in the preparation getting a jump start the night before to look at all the charts of the stocks that reported after the close that day but for the most part not seeing the results.

I’ve been trying to adjust how I’ve been trading lately maybe too much to the people around me. I think it’s smart to emulate people that are having success at a craft but maybe part of me feels like I’m having an identity crisis as a trader. Deep down I feel like my style is just being patient, not writing a lot of tickets, only trading a few names, and then just getting big in those plays. When I get off to a positive start in the open I usually feel in control and I think become even more patient and can usually stick to only a handful of names.

The real problem is when the first few ideas don’t work, I start thinking “Well I need to just need to be in something that looks like a good setup and get in light to all of those and hopefully something hits because it only takes one trade to turn my day around.” I want to be in names that everyone else is trading and those are the days I feel like I trade more names, more tickets, and finish either net flat or down for the day. I guess the real question is how do I adapt to a market that’s always changing while still staying true to what works for me as a trader?

So there is so much talk of not overtrading. But what is overtrading? Too many misuse and misunderstand this concept in our game. And does not writing a lot of tickets = not overtrading? Does not writing a lot of tickets = discipline?

There is confusion here. Traders should be selective. Becoming a high level trader requires developing a selective playbook that makes sense to you. You size up in only the best plays from your playbook. But does that mean not writing a lot of tickets? Does that mean not trading a lot?

Isn’t a sign you are an elite trader making a ton of trades? 1) You have a large playbook. 2) You are finding a lot of these plays. The problem is not trading too much for most developing traders. The problem is not having the skill to trade the plays your are trading. If you stink at the plays your are trading then of course you should not trade many of them. You stink at them. And more of them is gonna mean more lost money. But this means you need to get better at your plays not make fewer trades.

And here is another huge negative of not making many trades. Let’s say you are one of those two or three a day traders. GMan makes more trades than that sleeping 🙂 . Inevitably you are gonna hit a bad streak. If your normal win rate is 40 percent, and you hit a bad streak, it might be a few months of negativity for you. And then the doubts enter stage right. And then you start to think about making adjustments that perhaps you might not need to make. It might just be the math is not on your side for these few months. But you mix that up and overvalue a normal drawdown for the inactive trader.

Then you start with plays that are not even in your playbook. Then you skip the best plays that are in your playbook. And now you have created a whole new math for yourself. How bad you can be when you make trades not in your playbook and skip the ones that are.

But if you are an active trader making many trades, with a thick playbook, the math will work better for you. It will be so much harder to have a bad month, heck a bad week, heck a bad day. The math indicates that it is improbable to have the long negative streak of the inactive trader. And you are less tempted to all that getting in your own way above.

Let’s take basketball as an analogy. So Lebron James can dunk. His shooting percentage is extremely high slamming the ball.  This summer he worked on developing a post up game. He wants to develop more shots that are also high percentage plays so he can score more points for his team. Isn’t that good for the Heat?

If you have a play that works and makes sense to you, you want to trade as many of them as you possibly can. If you have shown the skill and discipline to find a play that is profitable, then you can find more. You can grow your playbook. And then you are gonna want to find as many of those other plays as you possibly can.

So do not mix up stinking at a play with the need to not trade much. That makes no sense. Of course be selective with your trading and only make the trades that make sense to you. But don’t you want to find a whole lot of those trades? And then don’t you want to develop the skill to trade more set ups that make sense to you so you have more opportunity?

Anyone disagree? I hope so, and please share your thoughts in our comments section.


One Good Trade

4 Comments on “An Argument for Why Not Trading Much Makes No Sense”

  1. Bella, you of all people should know when you start to plateu its time to focus on another animal.

  2. Bella,
    This just goes back to what you talk about all the time. Focus on improving everyday and only place trades that make the most sense to you with the most size (improve those plays then focus on expanding your playbook)! To me, if you’re struggling with a setup or setups that make sense to u, it’s best u spend more time journalizing these trades, trading on a demo, replaying these trades, thinking about these trades, talking to other traders and getting their opinions, and then repeat, repeat, improve, improve. We control our actions and our attitudes, so we need to work hard on improving them daily. Slow and steady, small gains every single day

  3. The last sentence sums up what he needs to break through to make it to the next level. How do I adapt to a market that is always changing and still staying true to what works for me as a trader? He finds the answer to that and he will become more successful. I have a feeling that answer is a little different for everyone.
    I agree with Bella. If you want to be an elite trader and be very successful you would have to have the large playbook and trade multiple set ups.

  4. The problem is that this trader is not Lebron James. He dosen’t have much experience and a big playbook.  If I am a basketball coach, I will not let this new player shoot a lot which can cost the team the game.

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