Many traders tend to trade without truly justifying a reason to do so. They trade too much and too often without weighing the pros and cons and thus end up losing a sizeable chunk of their trading accounts. They make their brokers rich and themselves poor to the state of extinction!
Trading successfully is the ability to execute a good trading system at the right time in the right proportion with the correct risk management techniques to maximize profits. Little do many traders understand the importance of this statement and keep on trading with their eyes tightly shut. They keep on drilling holes in their pockets trade after trade and eventually end up in huge losses. They reach a point where they feel a return is impossible and give up trading.
Overtrading is caused primarily by greed and creates a blind spot in the trader’s psyche which prevents him from visualizing its horrendous outcome. Profits earned in an earlier trade are washed out and converted into losses because of this greed. A trader closes a winning trade only to jump into it again for more profits and thus loses his earlier profits in the bargain. That desire to suck out more from the markets makes him trade more and eventually lose out everything.
Losing his gains causes pain and a deep sense of regret. He then tries to cover up his losses by taking more trades and this vengeful action causes him to lose even further. His greed and vengeance create a false hope in his mind that one more winning trade will pull him out of the doldrums. Like an animal trapped in a swamp of quicksand, he goes on kicking more desperately only to sink further and further down. With his faculty of reasoning completely overpowered by desire, vengeance, and desperation he goes on executing trade after trade in the hope of that one good trade which will see him through.
Another factor that causes one to overtrade is the culpable ability to create a trade where there is none. Watching the markets for an extended period without finding an opportunity causes the trader to see things that do not exist. His boredom and idleness cause his mind to see pseudo opportunities and forces him to jump right in rock, stock, and barrel!
He once again loses out and then vengeance takes over. Trade after trade he mounts his defeats in trade losses and brokerages.
When eventually he loses everything, he wakes up to his follies and realizes it is too late. With a sense of defeat, he gives up trading. The braver and stronger ones arrange to bring in more capital only to repeat the same mistakes once again.
Prices are historical and so are the follies of the traders and investors!!!!!