If you are a trader, sooner rather than later, you will need to determine what volumes you are going to trade every day. While this may flow naturally from your trading plan, you should occasionally stop and review your trading volume to see whether you are over-trading or under trading your particular strategy. Too many or too few trades could mean that you are not using your strategy to the maximum advantage. For instance, if you were following a scalping strategy, you would need to make lots of trades whereas, if you are a position trader, you will need to be far more selective in executing your trades.
The first thing to decide is what kind of trading style you wish to adopt. If you dislike being rooted to your computer screen and watching every price moves in the market, scalping is certainly not suitable for you. On the other hand, if you like the involvement and the action in the markets, you should certainly consider scalping as a possible strategy. If you see yourself has been strong on research and trading on major news events based on technical analysis, you may want to do fewer trades and focus on long-term investment and research.
You can also consider the alternative of medium-term trading strategy where you will not hold a position all day but neither will you enter and exit positions every few minutes. Your research may have spotted a major move in the market and you get onto the bandwagon by making a trade. The moment the move shows signs of flattening out or losing momentum; you exit and take a profit. Depending on the volatility of the market, you can probably make several trades a day if you adopt this trading strategy.
Circumstances in the market can often force you to switch trading styles and strategy but, generally speaking, scalping will not be the strategy for you because the multiple trades required to accumulate small increments of profit will result in larger transaction costs. Your profits will shrink rapidly and you may well end up making a trading loss. You should not actively consider scalping unless you have exceptionally low transaction costs. If you’re just starting out, you may wish to limit your trades to limit the costs and concentrate your efforts on making a higher profit on every trade. You can use the time saved to concentrate on research and technical analysis to stay on top of the market. Your trading volume and your trading strategy should also take into account your chosen lifestyle such as the need to spend time with your family.
Finally, you need to be able to determine whether you are under-trading or over-trading. In other words, you must determine whether you are giving away potential profits by not taking full advantage of opportunities or are you incurring excessive transaction costs that eat into your profit. Clear signs of under trading are not trusting and following your trading plan or regretting not making promising trades. Over-trading is more difficult to identify but if you are consistently making low profits after taking into account your transaction costs, there is a good chance that you are over-trading. Cut back on your trading volume and concentrating on improving your profitability.