How Often Should I Trade

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How Often a Day Trader Should Trade

Wondered how often you should trade? Here’s the answer.

Danil Melekhin/Getty Images

As a new day trader you may worry about overtrading or undertrading – so how many trades should you make in a day? Is there a sweet spot for how much to trade? The answer is both simple and complex. The simple answer is to trade exactly as much as your proven strategy tells you to trade. Although, if you are wondering about over or undertrading, you may not be at the stage of having a strategy that has proven profitable. First look to develop, or learn, a strategy that aligns with how active you want to be.

Strategy Dictates Frequency

A well-defined strategy tells you exactly when to enter, and under what conditions, as well as where to get out for a profit or loss. Since day traders take the trades their strategies tell them to take, trading quantity and frequency will vary daily.

For example, a trend-following strategy could result in many trades on a day when the asset being traded is trending. On a day when an asset is range-bound or barely moving, a trend-following strategy will produce few, or no, trade signals.

A range-trading strategy will likely produce few trade signals on days when the asset trends, but will produce many on days where the asset’s prices move mostly sideways.

Your strategy should act as a filter for how often you should trade. Having strategies for both trending and ranging environments – along with a way to determine whether the ranging or trending strategy should be employed – will allow you to have at least some trades nearly every day.

Maximum Daily Trades

While your strategy determines how often you day trade, overtrading can occur when you take more trades than your strategy dictates. This is often a result of boredom or lack of discipline. Since these trades occur outside of a tested strategy, they are less likely to perform well, reducing profitability and increasing commission costs unnecessarily.

While commission costs are often viewed as a hurdle to day traders, this is typically because they are overtrading, or aren’t using a good day trading method. With a good day trading method, commissions aren’t typically a major concern.

Minimum Daily Trades

Again, trade what your strategy dictates. When traders undertrade, they typically skip the signals built into their strategies. This is often due to fear of losing, not being ready to trade, or the strategy may be one that sounds good in theory, but doesn’t work as well in reality and is therefore too hard to implement.

Some traders mistakenly believe that undertrading is better than overtrading. This is a false assumption. If you have a strategy that tends to win over many trades, by skipping trades, you reduce your chances for success.

For example, assume you have a strategy that wins 55 percent of the time. By skipping a trade, you are more likely to skip a winning trade than you are to skip a losing trade. Track your performance and take the trades your strategy gives you.

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Develop Your Strategy

If you haven’t developed, tested, and practiced a day trading strategy yet, focus on developing or finding one that suits your personality and lifestyle. For example, day trading strategies can be developed just for the opening hour of the U.S. market. Typically, you make one to five trades in that hour, and your trading day is very short.

If you want to trade all day, develop strategies that adapt to various market conditions, as you will face changing conditions throughout the day, when things can get more volatile, less volatile, trending, ranging, lower volume, and higher volume depending on the asset and time.

Once you develop a strategy, it is very important to put it to the test. Make sure it would have been profitable in the past, then practice with real-time data to make sure you can properly implement it. If it proves profitable, that will tell you exactly how much to trade. Don’t trade more or less, as both can pose problems. If you don’t have a strategy that tells you exactly when to trade, don’t start trading until you do.

When Should You Trade in Your Car

The new car you bought 3 years ago for $30,000 is worth just over $15,000 today, and you’re thinking it might be time to trade it in before its value vanishes completely.

While getting rid of that used vehicle might seem like the smartest move, you shouldn’t use the last couple of years of depreciation as an indication of what will happen next. It’s important to carefully consider timing and value to understand the best time to trade in your car.

When is the Best Time to Trade in a Car?

Many people believe that you should trade in or sell your car every 2-3 years. While getting a new car might seem exciting, is trading in your current car worth it?

There are several ways to determine if it’s worth making a change. Start by looking at your car’s trade-in value, or the dollar amount you will receive from selling your car to a dealer when buying a new one. If it’s high enough to give you a low monthly payment, it may be worth considering.

Another factor to consider is current maintenance costs. Does your current car need some work that might cost you a small fortune? Looking into buying a new car that doesn’t need costly repairs might be a better route to take. Create a budget to learn if these repairs will fit into your monthly expenses.

Every car is different, so it’s important to consider your unique situation. However, there are some basic calculations that can help you decide if trading in your car is the right decision.

How to Calculate the Best Time to Trade in Your Car:

Imagine that you had a car that costs $30,000. During the next 3 years, the value is reduced to $15,000. If you take the difference between the original price and the current price, you’re left with a depreciation amount of $15,000.

(Purchase price)$30,000 – (Current value)$15,000 = (Depreciation)$15,000

If you divide the depreciation amount by the number of months you have owned the car, you will find that you paid $416 per month in depreciation to own the vehicle.

(Depreciation)$15,000 / (Months owned)36 = (Depreciation per month)$416

However, if you continue to own the vehicle for another 3 years, you may see the value of the vehicle will drop from $15,000 to $13,000. That means that for the next 3 years, you will only have paid $55 in depreciation every month.

(Current value)$15,000 – (Value in 2 years)$13,000 = $2,000

(3 years of depreciation)$2,000 / (Months from present)36 = $55

Ultimately, if you keep the car for 3 years, you “lose” $416 per month in value depreciation. But if you keep the car for 6 years, you only “lose” $236 per month.

(First 3 years of depreciation)$15,000 + (Next 3 years of depreciation)$2,000 = (Total Depreciation)$17,000

(Total depreciation over 6 years)$17,000 / (Total months owned)72 = (Depreciation per month)$236

This math shows that it makes more financial sense to keep the car longer. Keep in mind that “losing money” due to depreciation is not a complete loss. While it is money out of your pocket, you will also have use of a well-running car, a value that is harder to quantify but should still be a factor.

Cars typically lose value faster in the first 2 years of ownership. Once you’ve weathered that stretch, the value will drop much more slowly.

How to Trade in a Car

Trading in a vehicle is a matter of doing your research and shopping around. You want to find a dealership who is willing to give you as close the amount your car is worth as possible.

Start by doing research on your car’s value. Use resources like Kelley Blue Book or Consumer Reports to determine the estimated average value of your car’s make, model and year.

The next step is to shop around for the best trade-in value. Visit a variety of dealerships, including second-hand lots and official dealers to find the best offer. Don’t forget to bring any necessary documents, including:

  • Your driver’s license
  • Registration
  • Keys
  • Car title
  • Any other ownership documents

Can You Trade in Your Car Before You’ve Paid it Off?

While the trade-in process can seem straightforward, you may be wondering how you can trade in your car that you haven’t completely paid off. If you still owe money on your auto loan, there are extra steps you need to take before making the trade.

When you take out an auto loan, the car is used as collateral until all the money has been repaid. In most cases, it’s in your best interest to pay off your car loan before you trade in your car. That said, it’s still possible to trade in your car before it’s paid off. As long as you’re not behind on your car payments, most dealerships will allow you to transfer the remaining amount of your loan to the new car’s loan. This means that if you finance your new car, your car payments will likely be higher than if you waited to trade in your car until you finished paying off your loan.

This is the part where you consider the equity of the car. Equity is the value of an asset that you own. There are two types of equity situations you may find yourself in:

  • Positive equity – If you’ve determined that your car has an $8,000 trade-in value and you only owe $5,000, then you have $3,000 worth of positive equity. That equity can be used towards your new car loan.
  • Upside-down equity – If you find out that your car only has a $5,000 trade-in value and you owe $6,000, then you have a negative or “upside-down” equity amount of $1,000. This is the amount you will have to pay out of pocket to the original auto loan lender before you can trade the car in.

Before signing any documents, make sure that you have contacted your original auto loan lender to inform them of your decision to trade-in. They may even offer an alternative auto loan solution for your new car at a reduced rate.

Trading in a Car for Lower Payments?

If you’re looking to trade in your car because your current payments are too high, you may have more financial troubles related to debt than you realize. Talk to our certified financial coaches today to get expert personal finance guidance and help with unsecured debt you may be facing.

About The Author

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over 19 years experience in the industry.

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How Often Do Professional Forex Traders Actually Trade?

This article is going to challenge some of your beliefs about trading, especially the beliefs you hold about how often you should trade and the consequences that your trading frequency can have on your forex trading account. Hopefully after reading it you will gain some powerful insight that will help you stop over-trading or prevent you from turning into an over-trader like the guy in this picture on the right.

One of the biggest obstacles standing in the way of amateur traders becoming professionals is their lack of recognition and(or) acceptance of the fact that trading less frequently almost always produces more consistent and more profitable long-term market performance than over-trading and interacting with the market too often (ie: Day trader market junkies).

Professional traders view each interaction with the market through a realistic lens that does not filter out the risk involved with every potential setup, whereas amateur traders tend to think less about the risk involved and more about how much money they can make if XYZ happens. This is an important point to take into consideration before you enter your next trade.

• The extremely slippery slope of over-trading

If you have had any experience trading real money in the markets you very likely have experienced first-hand just how slippery the “slope” becomes once you start over-trading. Most traders do not even recognize they are guilty of over-trading until they have lost so much money that they are forced to take a break from the market, it is then that they typically realize what they have done; entered numerous trades with no sound logic or rational behind them.

Professional traders are always aware of the dangers of trading too frequently, they know that it is a very short stretch from entering one too many trades to full-scale addiction to the forex market and to chart watching. In essence, amateur traders that get caught up in a fit of over-trading in the forex market are simply gambling; continually entering the market randomly while hoping for a windfall profit. The professional trader is not a gambler; he or she is a risk manager who simply seeks to flawlessly execute their edge in the market only when it is present.

This typically means that most professional traders are not day trading or scalping, instead they are focused on multi-day positions and look to take a good slice of the action that takes place in the market each week or month. This typically means taking multi-day positions in trending markets, because it is easier to take larger chunks of price action out of a trending market by holding multi-day positions than it is to constantly jump in and out trying to scalp the market each day.

Trading less frequently like this also makes you more immune to the slippery slope of over-trading. Even if you are following an effective day-trading or scalping edge, when you trade with the high frequency demanded by day-trading and scalping strategies, you drastically increase the odds that you will give in to the ever-present temptation to jump into the market when your edge is not truly present.

• You can’t get hurt from the sidelines

The value of simply NOT BEING IN THE MARKET cannot be overstated. Many amateur traders don’t even consider that being flat the market can actually be a very lucrative position, not to mention it is the SAFEST position you can take in the market.

To understand why not being in the market is actually a lucrative position you have to look at it from a different perspective. Let’s say point A is being flat the market, and point B is where you trading account stands relative to point A after a losing trade, you obviously had more money at point A than at point B, thus point A (being flat the market) is actually a lucrative (profitable) position compared to point B since you have more money in your trading account at point A than you would have had if you had lost that money in the market and went to point B.

The fact that most amateur traders simply do not even consider the fact that being flat the market is valuable is directly related to the fact that they simply do not believe the market is as risky as it actually is, or they simply ignore this reality. Professional traders are fully aware of the risk involved in the market, therefore they inherently understand the value in being flat the market, and thus they trade less frequently than amateurs.

• How does trade frequency relate to long-term trading performance and a trader’s mindset?

Once you identify exactly what your trading edge is, and the market conditions that are best to trade it in, you can begin to trade with patience and precision because you now know EXACTLY what you are looking for in the market. In essence, you have to master one forex trading strategy at a time, so that you can almost instantly look at any price chart and tell if your edge is present or not. Once you obtain this level of trading mastery and skill, over-trading or entering a position when your edge is not present will seem silly to you and just down- right stupid (because it is!). To put it more succinctly, you are more aware of whether or not you are over-trading when you are completely aware of what your forex trading strategy is.

Due to the fact that professional traders have mastered their forex trading strategy, they trade less frequently than amateur traders because the pros are looking for a very specific event to occur in the market, rather than throwing darts in the dark like so many amateurs do. So, it almost goes without saying that once you totally mastered your trading edge, entering trades when your pre-defined edge is not present will have a negative effective on your long-term profitability. So, trading with precision and patience inherently means trading less often, but it also means greater profits in the long-run, which is the whole point of trading.

Traders who follow their trading strategy to the T actually enjoy the patience and the down time in between trades, it becomes routine and comfortable over time. They do not feel a “need” to trade when there is no setup that fits their criteria. Operating from this confident yet carefree state of mind while interacting with the market is the way you reinforce positive forex trading habits, like patience and discipline, because when you wait patiently for your edge to appear and then execute it with effective risk management, you will see positive results after doing this for a series of trades, these results will reinforce the positive trading habits that produced them.

Amateur traders tend to reinforce negative trading habits like over-trading and over-leveraging by getting lucky a few times while committing one or both of these trading errors, it really only takes one big lucky winner while over-trading or over-leveraging to condition your brain to constantly over-trade and(or) risk too much.

• So, how often DOES a professional trader trade?

There is obviously no set answer for the number of trades that professional traders make each month, as every trader is different. However, if you are currently losing money in the markets you can safely assume that professional traders are trading less frequently than you are. If you are currently stuck in a rut of over-trading, one thing you can do if you are not already, is switch to strictly trading off the daily charts. Higher time frames lead to less trades but more precision and accuracy of the trades that you do take, you can also employ “set and forget forex trading” on the daily charts that requires only minor tweaking and minimal involvement beyond identifying your edge and setting the trade up.

In conclusion, if you take nothing else away from this article, just remember that professional traders are on average trading less frequently than you are simply because they fully accept and understand the risk involved with any one trade, so this tells you that you need to reduce the frequency that you trade or that you interact with the market. Let’s say that price action trading is going to be your trading strategy, once you master this trading strategy and you know exactly what you are looking for, there is no reason to sit at your computer all day staring at your charts. Set up a routine each day that you follow; you check for your edge, and if it isn’t there you come back the next day, or the next 4 hours or whatever your routine is. But, you don’t ever need to sit there and burn your eyes out watching the charts if you know what you are looking for. If you don’t know what you are looking for and you want to learn a very simple yet effective trading strategy that can give you a solid edge in the market, you should check out my price action trading course and online member’s trading community.

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