March 4, 2024


Business – Your Game

Do You Find Yourself Taking Too Many E-Mini Trades? You Might Be Overtrading

This article is really about high probability and low probability e-mini trades. The failure to distinguish between these two types of trades is often the cause of overtrading. Overtrading tends to chew up profits because you incur an inordinately high level of commissions. I will say this; your broker will love you, as he gets paid by receiving a portion of the commission charges to your futures trading account. One of the keys to being consistently profitable is to differentiate between trades that have a high probability of succeeding and letting that trade run versus taking lower probability trades that stand a greater chance of resulting in a trading loss.

It takes experience, education, and perseverance to correctly identify high probability trades. I think it is important to understand that you don’t always have to be in a trade. It is not unusual for traders to exit a trade and immediately start looking for another trade. Often times, there is not another good one to be initiated and the correct course of action is to sit on your hands. In my opinion, this is one of the most difficult skills to learn is discretion in taking e-mini trades. For some individuals, it is problematic to wait for the right for the right set-up come around, so they end up entering and exiting setups far too often.

On the other hand, low probability trades are always popping up and it can be an exercise in mental discipline to avoid the temptation to initiate a trade that stands a poor chance of success. Some typical situations to avoid are:

· Countertrend trades

· Trades in a degrading channel

· Trying to trade with the idea the market is going to turn

· Trading in a choppy market

· Trading in an extremely low volume market

· Taking trades of highs or lows of the day, this is often called the bounce trade

There are many types of problematic setups and they would be too lengthy to list, but these setups can cause a good deal of problems for most traders and should be avoided. One of the problems I often observe is initiating a trade that has a lower chance of winning than most and actually wins. This encourages the individual to continue to take risky setups as oppose to waiting patiently for a better set-up to form. Once a bad habit is positively reinforced by winning many individuals will attempt more setups than do not stand a good chance of winning. The cycle can easily drain a good portion of one’s futures trading account.

We have been talking about taking setups that have a good possibility of winning and taking lesser setups. If you are willing to take trades that do not have a strong possibility of winning you will find that you have accumulated far too many trades during your trading session. Focus on the good ones and lay off the bad ones. It’s easier said than done.