When researching day trading, you often come across the idea that “the more successful a trader is, the fewer entries they make.” For beginners, this is a bit of a strange concept. After all, it seems like more trades would mean more opportunities to earn money. In this article, I will break down what this actually means for beginners.
The conclusion is: “There is a tendency for it to decrease, but it should not be your goal.”
To clarify from the start, there are many cases where experienced traders make fewer trades than they used to. However, this is not true for everyone. Some people achieve results using strategies that involve buying and selling many times in a short period. The number of trades itself does not determine whether something is good or bad.
The important point is that a decrease in trade frequency is often a “result,” not an “objective.” It is not a sequence of reducing trades to become successful; rather, as a result of refined judgment, the situations you enter become more selective. If you get this order wrong, you will end up in a state of simply not trading at all.
Why does the number of entry situations narrow down as you gain experience?
As a beginner, when you look at stocks that are moving, they all look like potential entries. The price movement is large, the volume is high, and the order book is active. Because the criteria are not clear, many of the movements you see become candidates.
As you gain experience, you become able to distinguish between the patterns you are good at and those you are not. This is because you can see in your records which situations were easy to win in and which were easy to lose in. Consequently, you start waiting only for the patterns you are good at, and as a result, the number of entries decreases. It is closer to reality to say that you have become able to choose, rather than that the number has simply decreased.
The weight of each individual trade changes
When the number of trades is high, your awareness of each individual trade tends to fade. Because there is always a next time, you feel that it is okay to be careless with this one. Conversely, when you limit the number of trades, your preparation for each trade increases. You gain the leeway to organize your reasons for entering, your stop-loss levels, and your profit-taking strategy in advance.
This is a matter of structure, not motivation. When you limit the number of trades, you increase the time available for judgment. If the time available for judgment increases, the quality improves. If the quality improves, it becomes easier to win. This cycle is likely one of the reasons why successful traders appear to trade less frequently.
Less visible factors: costs and exhaustion
Trading involves less visible costs, such as commissions and the spread between the buy and sell prices. The more trades you make, the more these small costs accumulate. The extent of the impact depends on the brokerage you use and your trading conditions. However, it is a common fact that as the number of trades increases, you can no longer ignore this accumulation.
Another factor is mental exhaustion. Every time you trade, you feel tension, make judgments, and accept the results. This burden increases in proportion to the number of trades. If you continue to make judgments while tired, the quality drops. Many people have experienced their trading becoming sloppier toward the end of the day.
Passing on a trade is also part of trading
A situation where you did not enter is not time spent doing nothing. The work of checking conditions and determining that they do not meet your criteria has been performed. An increase in passing on trades is also an increase in opportunities for judgment.
People who have reduced their trade frequency have not necessarily spent less time looking at the screen; in many cases, they are spending more time just watching. Watching, choosing, and waiting. These three things come to occupy a large proportion of the trading process.
Thinking through a hypothetical scenario
The following is a hypothetical example to illustrate this way of thinking.
A beginner enters one stock after another from the market open until just before noon, making over a dozen trades. Small wins and losses are mixed, and the final profit or loss remains almost unchanged. They are aware that by the second half of the day, they were tired and their judgment had become sloppy.
On another day, the same person decided to enter only when their preferred pattern appeared. The number of trades decreased to just a few. The waiting time was long and boring, but they were able to prepare for each trade, and the results were stable.
It cannot be concluded which day is better. However, it is certain that it is easier to look back on your decisions on days when the number of trades is lower.
The pitfalls of forcing a reduction in trade frequency
So, should you make reducing the number of trades your goal? Not necessarily. If you force yourself to limit them, you may become afraid to enter even when you should, missing out on opportunities. If you keep passing on trades, the urge to make up for it grows, and you might suddenly enter in situations that do not meet your criteria. These forced trades, which occur like a reaction, are actually dangerous.
If you are going to set a goal for the number of trades, it is more natural to decide to “only enter when conditions are met” rather than deciding on a “maximum number of trades.” The resulting number of trades can be determined after the fact.
If you look at the number of trades, look at it alongside your performance
If you are concerned about your number of trades, you should look at it alongside your performance rather than as a standalone number. Is there a difference in profit/loss or the percentage of trades you were satisfied with between days with many trades and days with few? If there is a difference, you will be able to see a guideline for the number of trades that suits you.
This guideline varies from person to person. The appropriate number of trades differs between someone who has plenty of time and someone who can only trade for a short period. It is realistic to find it from your own records rather than using someone else’s trade frequency as a standard.
Also, the appropriate number of trades changes depending on the time of day. During times when price movements are active, there are many opportunities for judgment in a short time, and during times when movements are calm, there are fewer opportunities. It is also helpful to record your performance for each time period.
Summary
When you become able to win at day trading, there is a tendency for the number of trades to decrease. However, this is the result of refined judgment and narrowed-down entry points; reducing the number of trades itself is not the goal.
There are people who perform well even with a high number of trades, and there are people who lose even with a low number of trades. What is important is whether there is a pre-determined reason for each individual trade. The attitude of checking the relationship between frequency and performance while looking at your own records will become the strength to continue for a long time.
The number of trades decreases as a result of becoming able to win. Just remembering this order will keep you from being swayed by the number of trades. As a beginner, rather than worrying about the number of trades, you should spend your time carefully reviewing each individual decision.
※This article is intended for general information and sharing ideas about the market, and does not recommend buying or selling any specific stock. Please make investment decisions at your own responsibility.
