Anyone who has traded for any significant length of time has been through it themselves at some point. They hit a good run of trading days and became so over-confident in their own trading abilities that they suddenly deviated from what's was working for them so far, broke their own rules in search of more "I can't possibly lose" trading opportunities, and quickly see what profits they had gained fly from their accounts. Or they took a string of losses and became frustrated with a market that is "working against them" and threw caution to the wind with undisciplined trade after undisciplined trade to get their measure of revenge or in the hopes of scraping back to their previous account balance. Of course, both of these over-trading scenarios rarely leave a profitable result and only act to dig a deep hole in a trader's account that they now need to dig themselves out of.
Most of us can naturally understand that this kind of behaviour isn't beneficial and won't help our bottom line. So why do so many traders regularly fall into these patterns of over-trading when it goes against their own best interest?
A big part of it comes down to trading being a unique endeavour compared to most careers. In most jobs or businesses it's seen as a positive to be highly active, always searching for fresh opportunities to expand, and to put in as many efficient hours on the job as possible. Your typical "go-getter" who creates opportunity for themselves and takes action is valued and in most cases can keep pushing successfully forward through sheer will and determination even if they have a few setbacks along the way. As they say, "it's not how many times you get knocked down that count, it's how many times you get back up." However, in trading these same qualities are likely to limit your potential unless you keep them in check.
As a trader there's probably no traits more highly valued than being patient and disciplined.
If you can identify and develop an edge then remain patient and disciplined enough to execute it time after time without deviation then you can be successful long term in this business. It's just a numbers game, after all, and if you've got a positive expectancy to your trading method then it will play out profitably again and again.
But it's human nature to be impatient, to be greedy. Somehow sitting on our hands waiting for a trade feels like we're doing this whole trading thing wrong. After all, if we're traders then we should be TRADING, right? The reality of it though is that in many cases the most profitable position is not taking a trade at all. When we try to impose our will on the market to force something to happen, when we trade impatiently and impulsively, these are the things that are likely to lead to strings of losses that cost us significant capital.
The act of waiting for a setup that fits our plan is where the real money is made in this business.
This impatience and greed can lead to some nasty things that most traders have experienced at some point early in their careers. They put together those spreadsheets that compound results and see that they can make millions, even billions, in relatively short order by taking trade after trade. The excitement of seeing those numbers and the near unlimited potential naturally leads them to search for trades on their charts and to trade impulsively rather than letting the market lead the way. They try to predict every move, anticipate every breakout, and catch every run even if it means chasing price after it's extended and moving into likely profit-taking areas for the "smart money" that has been riding the move. Yup, it's either death-by-a-thousand cuts as a trader chops themselves up with small losses or the ever-popular attempt to catch a falling knife when the move is already far extended.
They'll even load up their screen with dozens of indicators, check all the outside analysis they can for "hot tips", and come up with dozens of dubious and poorly defined setups in search of more trading opportunities. After all, the more indicators and squiggly lines there are on your charts or the more times someone is whispering about big potential in your ear then the more times something will pop up that you can trade and the quicker you'll trade your way to millions. Ok, I might be getting a bit sarcastic at this point but this really happens in the dark recesses of some traders' heads.
Some people will even start trading faster and faster charts each week in search of minuscule reward to risk opportunities simply because it will let them trade more often. Of course, they conveniently forget that by trying to take 50 tiny scalps a day that their business costs just increased dramatically through their various trading fees and commissions.
So if all of that is what the failed trader typically does, how do we adjust our mindset and become more disciplined, patient, and ultimately more successful? How do we trade less and ultimately become more profitable as a result?
The key to everything is to have a solid trading plan with a known edge that you can execute with confidence.
If you don't go in with a plan then you've already lost the game before you start. The profitable traders have you beat the moment you enter the market because they know that you will be trading off emotion alone and will set up their various traps all day to take advantage. False breakouts, choppy markets, whipsaws... this stuff eats undisciplined traders alive.
Let's consider an analogy for the kind of mentality that a trader should take to break out of these over-trading patterns. If I had to guess I would think that most skilled hunters could have a fast-track to being successful traders as they likely have the right mindset for the job. I'm not a hunter myself but it seems to me that success is largely based around patience, discipline, and having a plan. You need to know what your target is (your defined trading setup, in our case), have the patience for wait for the best possible shot since you might only get one (trading according to your rules with a clearly timed entry plan), and you need the discipline to not get bored and start taking poor shots before your mark appears (over-trading).
After all, what kind of hunter would a person be if they're waiting for the big mark but get bored and start taking shots at the dozens of squirrels or birds that they see with far more regularity? More than likely all you're going to do is scare away the big prize you've been waiting for and your opportunity is lost.
As a trader, entering the market "just to trade" is no different than that bored hunter wasting their time and effort. We're either going to chop ourselves up so much that we aren't ready when the good setup rolls around or we will run out of bullets as our daily loss limit is hit and won't be able to take the shot when it's there.
Having this kind of patience and discipline is a skill and needs regular practice to be developed.
One thing I commonly hear from new traders is that they are taking positions "just for the experience of entering and managing trades" but that's unlikely to be the real truth of it. They are taking trades because they want the rush as they hit the button, the feeling of getting a big win (even if the losses overwhelm it), or simply because they are a bit bored waiting for their next quality setup to roll around. Doing this kind of undisciplined practice isn't teaching you anything useful and in fact may do more harm than good.
A serious trader who wants to do this professionally needs to practice in the same way that they want to trade when using a live account and taking on real risk. Practice the way you want to play. If you imagine yourself as a disciplined and consistently profitable trader who follows his plan and takes trades within his rules over and over again then be that trader. Practice these behaviours in your historical replay sessions, continue them in your simulated account trading, then move them into your real money account if the results are consistent and profitable.
It's interesting to note that by being more patient and not succumbing to over-trading or deviation from your trading plan it will make all your future trading that much easier. As your patience is exercised and your discipline is rewarded you will start a natural positive feedback cycle where these abilities are boosted over and over with profitable results. The more you do it the more natural and relaxed your trading becomes, even as your position sizes and profits increase.
What starts for a new trader as a struggle to maintain discipline becomes a natural process where it's no longer difficult to follow your plan because you're confident in your approach and your edge if you just wait for the right setups. Patience and discipline continues to grow through the actions you repeat in the markets every day and from the consistent rewards you receive. You get to a point where you appreciate and embrace the idea that being more patient means being more profitable.
So why not start the right way and build that disciplined and patient mentality right from the start? Don't practice or sim trade and say to yourself that you're learning by constantly entering trades that are completely impulsive or without any known edge. Don't fool yourself into thinking this is accelerating your skill development as a trader.
If you want to be a consistently profitable trader who can do this full time from anywhere in the world then realize that the successful traders who have achieved that kind of freedom are the ones who know their edge and stick to their plan. Be that trader.
Not months from now after you "practice" by taking hundreds of undisciplined trades, not "after this one more try" when emotions have come to a boiling point and you force yet another entry, not after jumping from system to system every time you break your rules and have a losing day...
Be that trader NOW!