Overtrading - The Greatest Evil

Overtrading is the cause of more losses than anything else in Wall Street. The average man does not know how much capital is required to make a success and he buys or sells more than he should. Therefore he is forced to get out of the market when his capital is nearly exhausted and probably misses opportunities for making profits. Make up your mind how much loss you can afford before you make a trade and not afterward.

Stick to small quantities. Be conservative. Do not overtrade, especially at the bottom or top of long moves. Fortunes are lost trying to catch the last 3 to 5 points in extreme moves. Keep cool. Avoid getting overconfident at tops and bottoms. Study your charts carefully and do not allow your judgment to be influenced by hope or fear. Many a trader has started out trading in 10 shares and made a success because he started near top or bottom; then when the market had reached extreme, he began trading in 100-share lots and lost all of his profits and capital too, because he violated the conservative principle which helped him to make a success.

If you make one trade and it starts to go against you, you are wrong.

Then why buy or sell more to average a loss?

When things are getting worse, day by day in every way, why do your best to make them get worse in every way?

Stop the loss before it is eternally too late. Every trader should remember that the weakest point of all is overtrading, and the next, failing to place a stop loss order, and the third fatal mistake of all, averaging a loss. Eliminate these three mistakes and you will make a success. Cut short your losses, let your profits run, pyramid or increase your buying or selling when the market is movin in your favor, not when it is going against you.

Remember that wild, active markets are brought about by feverish manipulation, and that they increase the imagination, exaggerate your hopes, and take away all sense of reason and proportion. Therefore, in extreme markets try to keep a cool head.

Violating Rules

More traders are ruined by violating this rule than any other, except overtrading. When you buy or sell a stock and it shows you a profit of 3 to 4 points, what is the sense or reason for ever risking any more of your capital on it? Place a stop loss order where you will get out even or better; then you have all to win and nothing to lose. If the trade contin “hoggish,” expect more, hold on and hope and let it run into a loss, which is very poor business, and the man who follows it will not succeed in the end. Always protect your principal in every way possible. More traders are ruined by violating this rule than any other, except overtrading. When you buy or sell a stock and it shows you a profit of 3 to 4 points, what is the sense or reason for ever risking any more of your capital on it?

Place a stop loss order where you will get out even or better; then you have all to win and nothing to lose. If the trade continues to move in your favor, you can follow it up with a stop loss order. People often buy or sell a stock and it shows them a good profit, but they are “hoggish,” expect more, hold on and hope and let it run into a loss, which is very poor business, and the man who follows it will not succeed in the end. Always protect your principal in every way possible. investor or a trader to learn is to take a loss and take it quickly. When you see that you are wrong there is no use putting up more margin and holding on and hoping. If you take a small loss quickly and get out of the market, your judgment will be much better and you can see anopportunity to get in again and make profits.