The three O’s in the idea can all overlap one another and allowing one to creep in can lead to any of the other also creeping in to your trading.
We have all suffered at some point in our trading journeys of these three phenomena.
All of these O’s can lead to capital being impacted and potentially a blown account.
We’ll start with over trading.
On the face of it, over trading is taking too many trades.
Over trading can occur when chasing losses or being on a particularly good winning steak.
Either of those situations mentioned is essentially a loss of control.
The loss of control leads to a loss of focus.
The loss of focus leads to too many trades.
Too many of those trades will be stupid trades.
Those stupid trades will be losing trades at some point.
All these trades mean increased commissions.
The cycle continues and instead of compounding profits the only thing being compounded is risk.
Compounded risk leads to losses and if the cycle isn’t broken a blown trading account awaits.
Next is over risking.
Risk management is key to any trading plan being successful.
Stating the obvious in that first sentence.
But I’m also stating the obvious when I say we’ve all been there and risked more than we should on some trades.
Over risking more than our capital allows will only lead to tears and one outcome which is the blown account outcome.
We end with overconfidence
Probably the worse O of the three to allow in your trading behaviours!
Allowing this one to sneak in can quickly allow the other two already covered to sneak in.
Usually seen as a positive emotion in the world we live in, this emotion can quickly become a negative emotion in the trading world.
Allowing this emotion to creep in blurs our perceptions to so many concepts we need for trading and can lead to a gambling mentality.
Greed will take hold with overconfidence and when the winning streak comes to a cashing end the trader runs the risk of allowing the other two O’s to creep in leading to only one outcome.
The blown account yet again.
The O’s can crossover
All of the traits mentioned can be experienced individually or some can crossover one another. Below are a few examples.
We covered in the overconfidence how it can lead to the O’s creeping in. Overconfidence from a winning streak leads to overtrading which in turn leads to an inevitable losing streak and capital impacted with losses.
Worse case scenario is overconfidence from a good run of trades leads to over risking on the next set of trades which loose. You then end up over trading in revenge to gain back the losses which could lead to yet more losses.
You could be a new trader starting out with no confidence.
You start to over risk from the off and lead to your trading account being blown.
You could over trade combined with over risking which accelerates the loss of trading capital.
In those scenarios mentioned confidence hasn’t been an issue at all. But risk management and trade have.
How to avoid the O’s
I'm pretty sure we all suffer one of O traits at some point in our trading journey.
The key is to recognise the incident and the issues it caused and learn from that.
It lies with us as individuals to own up to our trading mistakes. Some of us will suffer all three O’s in our trading paths.
In owning up to our shortcomings all the O’s can be avoided going forward in your trading life's.
Hope you all enjoy your trading week.
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