When High Frequency Trading Becomes Destructive To Your Portfolio

Each month Option Alpha has seen it's readership and members grow - which is great. As always, I've never done any advertising or marketing for this blog. I'd rather have it grow via word of month and social media which to me is "real" growth and not "paid" growth.

So thank you all and keep spreading the word!

As the website continues to grow, I'll get more and more emails each week about a higher frequency of trading. It's really starting to alarm me to be very honest. What is the big freaking deal with trading so much? More monitors, screens and trades doesn't make you necessarily "smarter" or better at trading.

What are your thoughts on trading frequency? Do you think trading more often is a good or bad thing? Add your comments to this post and share your opinion.

More and more beginners think that trading more is cool or popular. Maybe they even think that trading more gives them more opportunities to learn more about the market but this couldn't be further from the truth. The more you trade the worse you get - period.

For our Premium Membership we typically send out 3-6 alerts each month and try to keep fairly consistent. Instead of focusing on trading more positions, we do a lot of analysis followed by more analysis and then make a solid trade. Too many traders email me and talk about making 5-10 trades a day! That type of frequency is just not profitable long term. Just look at the number of day traders that either lose all their money or quit within 6 months of starting - the numbers are staggering!

Stop making more trades and start making better trades. Analyze more frequently and learn to control risk. Go back and learn from past trades you made that didn't go well (I rarely see people do this one). If you focus on trading less and more consistent the profits will take care of themselves - our performance is living proof that 3-6 trades per month can be very successful.

  • Henrik

    It comes down to each individual's personality. I don't like to have 10 position open, god, not even 5! at the same time. 1- I dont have the time for that high maintenance. 2- I have a day job, so I can't keep glued to charts on a screen. 3- Commissions costs are just to high for me as a retail trader to be opening so many positions a month.

    I used to trade many positions a month. Each one with less capital. Many were winners but MANY were losers too. SO. in the end it was no different and making 5 - 10% every month was as hard as if I tried to make it only by playing 4 income plays in the whole month, with more investment per play.

    But for some people, I understand trading credit positions on indexes is, well, boring. As long as their approached work for them, good for them!

  • Mike

    Thanks for this article Kirk. I don't think High Frequency Trading is beginners who trade too much; it's specialized firms, large corporations, and hedge funds that apply algorithmic computerized trading, sometimes trading 10,000 times a day, and rarely holding positions overnight. This article provides good information on what High Frequency Trading is: http://en.wikipedia.org/wiki/High-frequency_trading.

  • Greg Seymour

    I can't agree more. I specifically changed to Option Alpha because I was with another couple of services which started over-trading during drawdowns with their systems, further compounding the losses. I much prefer to 'wait' for the Option Alpha trades, and then place a reasonably significant investment with each. Have been doing much better that way than with the 'higher frequency' services! Greg

  • Robert

    I have to agree with you, Kirk. Sometimes the best winning trade is no trade. You have to trade with what the market gives you. It is your conservative approach to trading that brought me to this site. Keep up the good work!

  • JETWAKE GLOBAL

    In the late 1990's when trading rules were much different than now in 2011, we would day trade all day, five days per week. We have made 81 consecutive trades without a single loss of even one cent. That is fun for about two weeks and then gets to be a grind. The nice part was growing a small account from $40K to $500K in two years. Being able to make large investments with small price moves is the easiest way to make profits. The second best way is options. Kirk helped us a few years ago and he was correct nearly 95% of the time and we made millions in about eight months. He is very smart and knows technical analysis better than most other professional traders.