Does Trading More = More Profits?
Seems like most of the Traders think that by trading more = more profits.
The answer to this can be two-dimensional.
Yes, theoretically the more you trade means you could make more money. If we simply do the math, day trader should be making more than swing trader/ long-term investor right?
But why the failure rate of short-term Trader is much higher than swing Trader & long-term value investors?
The key element here is emotions.
Let me share some examples here:
• Trader A is a swing Trader. On average he takes about maximum 5-10 positions per month
• Trader B is a day Trader. On average he takes about 5-10 positions per day
In this case, let's put performance asides, but who do you think will have less emotions involved in their decision making process? Definitely Trader A.
When you're taking less trades, means each time before you get involved in any position, you spend more time on your planning process, you are aiming for quality rather than quantity.
When you have more involvement in the market, you have a higher probability of over-trading, over-thinking, and over-reacting.
I'm not here trying to blast daytrading isn't profitable, it is in fact profitable. But most retail Traders take large numbers of unnecessary trades which elevate their risks, causing them not able to achieve profitability over the long-run.
When you lose a trade, you have a tendency of revenge trading. The more trades you lose, your irrational thoughts creates hope and ego, believing that you cannot be wrong.
The devil behind all these bad trading habits is purely illusion, the illusion of "This is going to be the best trade" OR "What if i don't take this and it turns out to be a winning trade?"
CEOs', Hedge Fund Manager, etc... They are all paid generously to make a small quantity of quality decisions, not to take large numbers of poor decisions. The same goes to trading, market will reward Traders who understand Risk Control and Trade Management.
The lesson here is to never rely on luck & hope in your trading. Instead, put more focus on your discipline and planning process. The more you are able to disregard the market noises, the better you perform.
The answer to this can be two-dimensional.
Yes, theoretically the more you trade means you could make more money. If we simply do the math, day trader should be making more than swing trader/ long-term investor right?
But why the failure rate of short-term Trader is much higher than swing Trader & long-term value investors?
The key element here is emotions.
Let me share some examples here:
• Trader A is a swing Trader. On average he takes about maximum 5-10 positions per month
• Trader B is a day Trader. On average he takes about 5-10 positions per day
In this case, let's put performance asides, but who do you think will have less emotions involved in their decision making process? Definitely Trader A.
When you're taking less trades, means each time before you get involved in any position, you spend more time on your planning process, you are aiming for quality rather than quantity.
When you have more involvement in the market, you have a higher probability of over-trading, over-thinking, and over-reacting.
I'm not here trying to blast daytrading isn't profitable, it is in fact profitable. But most retail Traders take large numbers of unnecessary trades which elevate their risks, causing them not able to achieve profitability over the long-run.
When you lose a trade, you have a tendency of revenge trading. The more trades you lose, your irrational thoughts creates hope and ego, believing that you cannot be wrong.
The devil behind all these bad trading habits is purely illusion, the illusion of "This is going to be the best trade" OR "What if i don't take this and it turns out to be a winning trade?"
CEOs', Hedge Fund Manager, etc... They are all paid generously to make a small quantity of quality decisions, not to take large numbers of poor decisions. The same goes to trading, market will reward Traders who understand Risk Control and Trade Management.
The lesson here is to never rely on luck & hope in your trading. Instead, put more focus on your discipline and planning process. The more you are able to disregard the market noises, the better you perform.
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