V.2:4 (132-135): The Seduction of Leverage by Jesse H. Thompson

The Seduction of Leverage by Jesse H. Thompson

"Leverage 'o Leverage. Ye siren of the speculative sea..." --Anon.

Rule: Do Not Overtrade!

I must have bumped into this time worn dictrum a thousand times before I began to understand more fully the implications of this rule relative to actions taken in speculative markets.

Of course, early in my studies I decided this rule was simply common sense and too basic to waste any further time or effort on, So I vowed to never overtrade and simple as that I was through with this rule. (Well, maybe I was through with this rule but it was NOT through with me.)

First, I did not stop to carefully define and identify the nature of this great ogre called Overtrading. Being so blinded, I failed to fully master the technique of How not to overtrade! It is not enough to empirically discover or intellectually agree that overtrading or any other trading sin is financially harmful, a trader must acquire the technique of translating this rule into action. A similar analogy can be applied to successful speculation, as it is not merely the' ability to analyze something, it is the further ability to translate that information into a practical and profitable technique of entry and exit.

A trading rule like a pearl of a precious necklace can only be strung and truly called yours after you have acquired a thorough understanding of its definition, its implications for action and can integrate this information into your trading operations. Only then can this rule be of great practical value.