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Over-trading refers to excessive buying and selling of financial instruments, often driven by emotions like greed or fear. It can lead to higher transaction costs and lower overall returns due to poor decision-making. Under-trading, on the other hand, occurs when traders or investors fail to take advantage of market opportunities, often due to a lack of confidence or over-caution. Both over-trading and under-trading can result in suboptimal portfolio performance.
A day trader engages in over-trading by making multiple trades every day based on short-term market fluctuations, incurring high transaction costs that erode profits.
• Over-trading involves excessive buying and selling, leading to high transaction costs and poor decision-making.
• Under-trading occurs when market opportunities are missed due to over-caution.
• Both behaviors can negatively impact portfolio performance.
Over-trading increases transaction costs and can lead to poor decisions driven by emotions, ultimately reducing overall returns.
Under-trading is often driven by fear of loss or a lack of confidence, causing investors to miss profitable opportunities.
By sticking to a disciplined trading plan, setting clear goals, and avoiding emotional reactions to short-term market movements.
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