One of the trader’s biggest psychological barriers to overcome is over trading. Of course, over trading is relative depending on the type of trader you are and the time frame(s) used to make trading decisions. However, if you have a well formulated trading plan, you will know from past experience when you are walking the line between planned trading and over trading.
Here are some of the symptoms of over trading:
1. not sticking to a plan or system
2. taking trades for no clear reason
3. taking on larger than normal positions
4. second guessing your system
5. jumping the gun (entering a trade in anticipation of an affirmative signal/pattern)
6. obligatory trading (if I am not in a trade, then I am not working)
The underlying cause of over trading is purely a lack of confidence either in yourself and/or your system. If you truly believe that your trading strategy provided X number of highly probable trades over X number of days, then why would you waste your energy (and capital) taking high risk, low probability trades? The answer: lack of confidence. The solution: think and train like a sniper.
According to the dictionary a sniper is a skilled military shooter detailed to spot and pick off enemy soldiers from a concealed place using long-range small arms. The word originates from the snipe, a game bird difficult for hunters to sneak up on.
Looking at just the statistics, more is not necessarily better when seeking to kill an enemy soldier on the battlefield. Here are the stats when looking at the ratio of bullets fired to enemies killed in several major wars:
WAR BULLETS FIRED TO KILL ONE ENEMY SOLDIER
WWII 25,000 TO 1
KOREA 50,000 TO 1
VIETNAM 200,000 TO 1
And the sniper’s stats: 1.3 bullets to kill an enemy soldier!
Charles Sasser, in his book ONE SHOT-ONE KILL, says of the sniper: “In stalking the enemy like big game hunters, these marksmen live out the philosophy that one accurate shot, one bullet costing a few cents, fired with deliberate surgical precision is more deadly and more effective against an enemy than a one thousand-pound bomb dropped indiscriminately” (2).
Let’s contrast, then, the symptoms of over trading as described above and the discipline of the sniper. According to the Sniper Training Field Manual No. 23-10, successful sniping is based on:
1. highly accurate rifle fire against enemy targets
2. the development of basic skills to a high degree of perfection
3. repetitiously practicing the basic skills until mastered
4. highly specialized training to ensure maximum effectiveness with minimum risks
Due to his detailed training for a specific task, the sniper is confident in his ability to perform his sole duty: to kill the enemy with one bullet under stressful conditions over and over again. Building confidence, then, is a product of consistent behavior and sustained success.
In like fashion the trader builds confidence by staying focused on a highly accuraterules based methodology via repetition. This methodology has proven to be highly successful when followed with a high degree of perfection, thereby, ensuringmaximum return with minimum risks.
In other words, follow strict rules that provide a high probability of success and in so doing you will have the confidence to carry out your plan under various market conditions. The result will be a rising equity curve.
TRADING IS WAR. PREPARE YOUR WEAPONS.