Ari Kiev suggests a few possible explanations in his book “Trading to win”. Some traders may overtrade just to gain some sort of involvement. They can’t sit still and do nothing. It’s as if they think, “An active trader trades all day.”
If you hold this belief, you will tend to feel you are missing out on something if you stand aside and do nothing. Other traders try to reach high performance goals, and feel that unless they make trade after trade, they have no chance of reaching them.
Professional institutional traders, for example, must make profits to stay employed. Sitting around doing nothing doesn’t make them think they can make a profit. When you fail to reach your performance objectives, there’s a powerful motive to make trades just to feel you are making some progress.
What often happens, however, is that bad trades are made and losses are mounted? In addition, while one is engaged in these loosing trades, he or she is not searching for solid, high probability setups. In the end, profits objectives are missed completely. (more…)