Top Advisors Corner

Alexander Elder: The Optimum Number of Trades

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A trader from Brazil asks: “I wonder whether I'm over-trading – throwing away my advantage as a private trader (as you teach.) As a Swing Trader, approximately how many trades a month do you consider to be the optimum number?”

Alex replies: two types of overtrading damage our performance. One is trading too big a size and the other is putting on too many trades. I addressed the first in several recent Password classes. Your question deals with the second type of overtrading.

While choosing a proper risk size is a matter of applying a simple formula, deciding how many trades to make rests on a different foundation…

I’m afraid that your question about a proper number of trades is like asking what is the best shoe size. The answer is different for different people. It depends first and foremost on how many open trades you can follow, while giving each of them your full attention.

To use a personal example, I realized years ago that the number of open swing trades I can follow with full attention is five or six. More than that, and my attention begins to slip. This applies to swing trade that last from a few days to a couple of weeks. I’m not counting long-term trades, at which I may glance once or twice a day. When it comes to day-trading – one, maybe two at a time.

I’ve met day-traders who can swing 25 trades a day, but that’s genius work, like playing improvisational piano jazz. I may admire that skill, but cannot match it.

Here’s the question you need to ask yourself: how many open trades can you hold, giving each full attention it deserves. Sort of like how many balls can you juggle? One? Two? Three? More? The answer depends not only on your skill but also on what’s going on in your life at the time, how open or busy are your days.

And another limiting factor – how many trades is the market giving you at this time? Your trading system or systems are probably better suited for one or two but not all market stages (uptrend/downtrend/bottomy/toppy). For me, there are times when there are more potential trades than I can take and other times when I struggle to find one or two.

As you can see, the answer to your question is driven by your personality rather than any specific number. Start low and cautiously go up, constantly paying attention to your mental state as well as your results. Keep good records and review them. Your records are like a mirror in front of your face. This is why I say in every class: show me a trader with good records, and I’ll show you a good trader.

Best wishes,
Alex

 

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