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Making too many trades is one of the most common (and destructive) mistakes traders make.
Given the complexity of option trading, you might think it would be a more common mistake to misread charting patterns or forget to check for stochastic shocks. But it’s not. The biggest mistake is trading too much.
Why is this? Well, I have a theory about that…
Most folks have been raised with a strong work ethic. As a result, they don’t believe it’s possible to make a lot of money with little effort. They think they will have to work hard.
So they end up feeling like they have to work hard at trading if they want to make any money at it. Which results in trading too frequently.
Trading frequently wouldn’t be such a problem except it often means taking a lot of sub-optimal trades.
Traders who are stuck in their thinking and believe they must work hard to make money trading end up settling for bad trades just so they can feel like they’re putting in enough effort. Instead of exercising patience and waiting for a really good trade, they enter new positions regularly, no matter what!
This approach to trading is detrimental over the long haul. In the best case, your profits are reduced. And in the worst case, you’ve got to live with big losses.
Here’s a real-life example. Jack R. traded 41 times in Sep 2007. Fortunately, he turned a small profit, even though he was trading at least once and sometimes twice per day.
When October came, he and his wife packed up their SUV for an extended road trip around the U.S. This turned out to be a good thing.
Naturally, Jack brought his laptop along. He planned to do some trading while he was on the road. But even though he had his laptop, he didn’t have a good Internet connection.
So in the month of October, Jack did fewer trades than he had done in September. Only 26 to be exact. The difference? These trades were much more strategic.
End result: Jack made more than twice the profits in October than in September. And it was almost half the work.
Here’s the lesson…
Trading doesn’t involve a bunch of hard work. And if you believe it does, you might be walking away with far less profit than is possible.
Be a lazy trader instead.
Be patient and wait for the right moment to enter a trade. Make a handful of really solid trades instead of dozens of mediocre trades.
Never compromise on your trading rules to make yourself feel like a “hard worker.” Just practice patience and wait for the right set-ups. This is the way to wealth, and why you should value laziness as a trader.
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