Do You Over-Trade Your Emini Account

By David S. Adams

One characteristic of novice traders and ineffective traders is to make too many trades every day. There are many causes for this phenomena, but if you are making 15 trades a day you are probably guilty of this offense. In my world, there are not 15 good trade set ups on the average trading day. I don't think I have made more than 10 trades on a given day, and I was probably guilty of overtrading on that day.

Trading too much during a trading session can eat away at your profits. On the other hand, your futures broker will love you because his commission account will soar, but I don't think your account will withstand the commission shock.

As I see the market begin to form a good set-up, I start an argument with myself. I usually look for reasons not to take the trade. Is the set up really a good one? Do some of the oscillators or price action appear to be pointing to avoiding the trade? Am I trading on intellect and not emotion? These are all questions to ask yourself as you prepare to enter a trade.

I think the root cause for over trading has its roots in emotion, specifically greed. After all, every trade has the possibility to make money, and making money is the reason most of us trade the emini contract. I like to fish, for example, and the only way to catch a fish is to have your line in the water. You won't catch that nice fat walleye if your line is in the boat. I think this analogy is a good one for trading, too. Many people feel the like they need to have active positions in the market in order to catch the next "big move."

One clarification here: I am a scalper, which is a technique for carving out 2-3 potential points in the market during the normal market action I observe. A scalper is a gunslinger, of sorts. Which is to say I look to make 5-8 trades a day that achieve my profit target. My average trade last 5 to 10 minutes and then I take my profit, or cut my loss. Now there are times when the market gets into a nice trend and I may sit in a trade for quite some time, but that is not the rule, rather it is the exception. (a very pleasing exception, at that)

My point is a simple one, don't make too many trades. Usually you are "chasing the market" when you trade to often. You have to tell yourself that there are times when you will miss a potential trade and err on the side of safety. This is especially true of counter trend trades, which are the bane of my existence. Counter trend trades must be scrutinized with the greatest of care because they account for many losses. The market might well head into opposite the direction for a bar or two, only to resume the direction of the trend. Years of heartache and cursing have hardened me against counter trend trades and I try to avoid them. You should too, the trend is your friend, and counter trend trading will make you old before your time and devastate your trading account.

One last note: Highly volatile markets will appear to produce many nice setups that can't be trusted. You will be tempted to take many trades. When trading the ES contract, you should note the Average True Range, and if it is swing in the 8 point range and looks like a seismograph in a 6.5 earthquake, you are likely to get blown out of most of your trades, and a profitable trade is more a function of luck than skill. Volatile markets, with the long bars and flags which are typical of this phenomena are good days to golf, as trading is a risky proposition. You will see many nice setups but it's like surfing in 30 foot waves, your chance to get crushed are very high. Wait for calmer waters and trade in a market where your skill level can earn you safer returns. Best of luck trading.