Every trader should ultimately consider is how often they should trade. Do they do one trade a day, 100 or more a day? Determining the times of trading is likely to occur naturally, all traders should stop and evaluate how much they are trading, and if it is possible for them to undertake or overwrite a particular style or organization. Scalping styles generally require a lot of trades, while level traders need to be more selective in the movements in which they trade. Every style is different, and many or very few trades can be detrimental to a trader’s profit.

A trader should watch instances of undertrading or overtrading. Are traders giving up potential profits because they are not ready to enter a position when they see an opportunity or waste money on excessive fees? If a trader works, “My trading plan says I have to go in. I did not!” Or “Why didn’t I do that trade?” This is a clear sign. In this article we will explore about overtrading and undertrading and how to handle this?

Under Trading

If you find yourself leaving potentially profitable trades on the table, there is a good chance that you are under trading. When this happens, you are leaving money in the markets that could be yours. If you find yourself asking why you didn’t take a trade, you are guilty of under trading. 

Overtrading

Overtrading vs undertrading: what’s the difference?

Undertrading usually means that there is little or no trading activity even when there are opportunities to trade. Overtrading is the opposite of undertrading.  When traders don’t use their funds for an extended period, hold very small positions, or have very strict entry conditions, they may be at risk of undertrading. The biggest cause of undertrading is the fear of losing money. But, if you don’t trade, you could miss out on the right opportunities. Traders who have not set up a trading plan, and just watch market as they go, are also at risk of undertrading.

Personal Style

Use a Trading Plan

When we add more criteria that need to be in place for a trade to happen, we will do fewer trades, but chances are that those trades will be more consistent and more profitable – although this is never a guarantee.

If a trader is undertrading, he will not have any such trading plan to be placed, so there is missing opportunities. If the trader does have a plan, the current criteria for entering a trade are likely too restrictive. If a plan does not allow the trader to capitalize on major movements, it should be adjusted so that the trader can take part in these moves. Do not cut off valid market opportunities because of a fear of losing. Develop a plan of attack for the markets. What needs to happen in order for you to enter a trade, and also what needs to happen for you to get out of a position?

The Bottom Line

All traders, regardless of how often they trade, should have a trading plan. After the trading plan is in place, we need to do a self-assessment of whether you are overtrading or undertrading within your plan. Based on these results, you can alter your trading plan to suit your needs and likely increase your profitability. If you are overtrading, you can make your trading plan more restrictive for entries and exits. If you are undertrading, you can relax your trading plan criteria to take advantage of potentially profitable moves in the market.