This is the transcribed version of the podcast linked above ^^^
In this episode, host Matt Davio and new trader Tony discuss the downfalls of both over trading and under trading.
MATT: [00:00:00] Hello I would like to talk to you about the One Minute Trader we are here to take the time strapped trader and turn them into a profitable, money making machine with daily ideas that give you, the trader on the go, a reason to trade with risk defined and profits taken when able. I’m Matt Davio and this is the One Minute Trader podcast.
MATT: [00:00:56] Welcome back to the One Minute Trader podcast. I’m Matt Davio, your host, and here again with Tony. Tony, I want to talk a little bit about the situation I run into all the time with traders experienced, non experienced and it really comes down to there’s so many psychological problems that go along. You know we were even talking about this offline, before we came on, with trading that boil down to under-action, over-action meaning over trading, under trading. Failing to act when appropriate. Over reaction taking actions that are not warranted in other words see things maybe that are really there, becomes an issue. Under trading means that we fail to pull the trigger when you know on our ideas and over trading means that we treat outside of the range of our initial ideas. I’ve got a Gandhi quote here where it suggests our actions express our priorities. Right? The trader who fails to act is very often prioritizing preservation (self-preservation) and again is run by fear.
TONY: [00:02:17] Right.
MATT: [00:02:18] Right. We talk a little bit about this, how people preservation of capital preservation and avoidance of risk and loss. The trader who acts excessively is over trading and prioritizing gain and avoiding missing out so that FOMO, that fear of missing out again. I see that, they’re either going to find a trade now because I got a bill due tomorrow, I’ve got to I want to buy a new car I want to pay my rent, I want to pay the water bill, I got to find something to do. You have to let the market do it do its thing. So what I find in working with traders is that under action and over action are both problems. They occur in really specific context. Very often the trader has figured out the idea that would have got that long or short a market or a stock. Right?
TONY: [00:03:27] Yeah.
MATT: [00:03:27] They’ve got that idea of what they how they want to behave. What they have not explicitly outlined however is the specific set of conditions that would have them act upon this idea.
TONY: [00:03:43] Not a fully baked trade plan.
MATT: [00:03:45] Correct. So the strategy they know why they want to be long or short, but they haven’t outlined it. It really comes down the process again. Alright, What are the specific set of conditions that would have them act upon being long or short on that idea. In other words, they had the idea but they don’t have a clear, defined set up criterion that would allow them to execute that idea. So they get stuck. Right?
TONY: [00:04:16] Yeah.
MATT: [00:04:18] The way they get stuck is again over trading or under-trained. They’re both very similar. They’re both fear driven They’re both you know over or under reaction. And the absence of having that clear entry or exit say signal they’re left with ambiguity right. They’re literally in no man’s land.
TONY: [00:04:38] Yeah, yeah.
MATT: [00:04:41] And that ambiguity is fertile ground for the psychological damage for lack of a better word: priorities. The priorities of the psyche. Avoidance of risk. Fear of missing out again. They then fester, grow, and become the dominant psyche. Alright. So if you allow that because you-
TONY: [00:05:07] So then all action or inaction takes place from-
MATT: [00:05:10] Too much action or no action. Right. And you can’t find that middle ground. So it’s necessary to have some ground and sound ideas. Again, process that give you an edge to succeed in trading. Alright. And we talked about this all the time. You have to have a process that you can always come back to when you stray from it and kind of start over. It’s like riding a bike you know you got to get on, and you got to balance and from there you can jump curbes or you can do different things but you have to have a basis just to balance. Right. So once you start the balance then you can move forward with the trading. So that’s the way that you can have long term success is by having this process, this plan. I say this it’s like this in any business. How do you implement these types of ideas without a sound basis for implementation. These ideas can’t happen either. So it’s all part of the process. So we see opposite problems as well. Traders will grasp at set ups, like “I see something” you know again cognitive dissonance, they want to believe that they’re short, they’re long, the patterns in price movement that they think hey can predict and see. They see these as trade ideas without any objective verification. There’s no back testing that give you a probabilistic edge.
TONY: [00:06:38] It almost sounds like they’re projecting what they want to see on the chart rather than absorbing what the charts telling them.
MATT: [00:06:44] And we say and we say this all the time you will get exactly what you desire out of the markets and markets will give you what you want not necessarily what you need.
TONY: [00:06:55] Or when you want it.
MATT: [00:06:57] Or when you want it. Without this probabilistic process that gives you some type of edge. Alright. So selling something that is holding at a level X, may be a useful observation. But it’s not really a plan. Right? Why? Why is that? So a common problem among daytraders and I’m not, by technical terms, I definitely hold positions I don’t get into a trade thinking I’m going to be a daytrader. Let me again preface that I am not, by definition, a danger. Daytraders mean I come in flat and I end flat.
TONY: [00:07:38] Yeah.
MATT: [00:07:38] I don’t believe in that I think it’s very very difficult. I think I’ve been very vocal on this and I don’t care how much money you have. It doesn’t take a big account and meeting ten million dollars to trade overnight. You can trade. You don’t need to be a day trader. So think about that. You can trade one contract. That’s the smallest you can trade of anything and you can be successful. You can be successful trading one contract.
TONY: [00:08:02] You are not opposed to taking a trade within a day.
MATT: [00:08:04] I am not opposed.
[00:08:05] But it’s not my process. So, however, those that try to day trade there’s such eagerness to trade and that’s also why the open hour and the closing hour are so frantic.
TONY: [00:08:23] Yeah well that’s the problem right.
MATT: [00:08:29] If you were really if you were really smart about day trading you would probably avoid in the open in the close and find something in between when you have kind of that information before knowing that that’s when the daytraders are behaving. Don’t trade with them. Trade against them. OK. In that middle part of the day. That’s that’s one thing that I would suggest. So if you’ve spent no time researching a strategy or a process of your ideas that are worth trading then you’re not going to be able to have a long term plan or process to come back to make money. Hench, you’re going to fall into that cycle of over and under trading and not be successful. I think once the individual is able to discern, distinguish between the idea that we’re trading and our plan for executing that plan.
TONY: [00:09:19] Yeah.
MATT: [00:09:20] Because you have to discern the different. We’re in a better place as traders to figure out what we need to work on, where we need to get stronger versus what we need to eliminate. Sometimes, it’s literally, I always tell people you’re better off eliminating something in your plan than you are adding to it. In other words, don’t trade that opening hour, might be the one thing that sucks you in. Don’t trade the closing hour may make you a successful day trader. Something to think about. Now you have to test that.
MATT: [00:09:53] Right.
MATT: [00:09:54] But it might very often prevent you from over trading or under trading, failing to act on the valid opportunities simply because we have not been explicit in designing our process. And then that idea of how we express that if we can’t tell you simply. I say this all the time trading doesn’t have to be complicated. Most people say “well it has to have these 29 variables”. Well, you’re never going to trade because like how often do we have the solar eclipse? You know we have one come in here in Oregon and everybody is coming so.
TONY: [00:10:34] It’s been like 30 some odd years since the last one that was equivalent to this one here.
MATT: [00:10:39] Here.
TONY: [00:10:40] Correct.
MATT: [00:10:40] But they happen all over. Right. All over the world.
TONY: [00:10:44] Yeah.
MATT: [00:10:44] That’s the fascinating thing.
MATT: [00:10:45] So you know maybe you need you know if you’re a solar eclipse trader you need to go where the eclipse is.
TONY: [00:10:51] There you go.
MATT: [00:10:52] Where you are going to make your money because everybody’s going to come and want to see this thing.
TONY: [00:10:54] Or be very patient and wait for the new ones are coming to you.
MATT: [00:10:58] Exactly. So anyways I just wanted to throw out a today. Process, plan, plan, plan, back test. Always, right. That will prevent you from over and under trading and if we can help you with that drop me an email at ( [email protected] ) We hope you are enjoying the podcast. We hope you are finding value in them. We’re going to continue to do these.
TONY: [00:11:28] Give us a like.
[00:11:28] Give us a like on iTunes, Stitcher, Soundcloud. Anywhere that you’re finding our podcasts we appreciate you listening and we appreciate the growing emails and questions. Please send them to us. It is helpful for us because we know if you’re thinking it everybody else is thinking it. And sometimes I can’t see the forest between the trees, I get a little too close. So what sounds like common sense to me is not necessarily common sense because I’ve been doing this for so darn long: twenty-seven years. We hope you find value. And if you’d like to get our regular trade ideas we offer a five minute video every day to clients that gives you a trade idea around a process. Again we have created a process of many processes for trading because we’ve been doing this for so long. We would love you to share in this idea process with us. You can sign up at oneminutetrader.tv and if you’d like to have one hour consulting, a day consulting we’re available for you for that also and you can find us on the Web site there. As always thanks for listening and we’ll be back here next time. Have a great day.
[00:12:47] The One Minute Trader was devolved to bring you fresh trade ideas every day of every trading week. Make sure you go sign up for our invaluable One Minute Trader daily e-mails along with our five minute video emails to get timely insights into evolving trade possibilities. Let One Minute Trader be your second set of eyes for trade opportunities that may have passed you by. We appreciate you listening today to the podcast and we hope you’ll support the show by leaving us a positive rating on whichever platform you’re tuning in from. I’m Matt Davio and this is the One Minute Trader podcast.