Overtrading the day after a big news day, why volatility makes me greedy

[Fairman]

Overtrading the day after a big news day, why volatility makes me greedy

after a big news day with lots of movement, the next day often feels dull by comparison. I notice that I get restless and start looking for the kind of action I saw yesterday. That's when I overtrade.

The market is often calmer after a big event, with smaller ranges and slower moves. But my brain is still calibrated to the previous day. I take setups that are too small for the pair, or I stretch the criteria to feel like I'm doing something. The results are consistently poor.

What I do now is adjust my expectations the night before. I look at the typical range for the day and write down what a normal day looks like. If I see that the opening hours are quiet, I tell myself it's a quiet day and the plan is to take fewer trades.

I also reduce the number of trades I allow myself, in the same way as on holidays. It's easier to accept a slow day when I've decided in advance that it's going to be one.

[Fairman]

Adjusting expectations the night before is a good habit. I do something similar by writing down the average range for the next day and comparing it with the range of the big day. Seeing that today is likely to be half the size makes it easier to accept smaller targets and fewer trades. I also cut my maximum number of trades for the day after a big event, which stops the restless feeling turning into overtrading. Fewer trades on a quiet day is not missing out, it is matching the market.

[Fairman]

The point about the brain being calibrated to the previous day is spot on. For me, the big moves make normal setups look boring and I start chasing anything that moves. What helps is reviewing the big day's trades before the next session, so I close the chapter on it. Then I treat the new day as its own session with its own levels and its own normal behaviour. Usually by the second or third quiet day after a big event I feel normal again, and the urge to chase has faded on its own.

[Shadow Trader]

Putting a number on the comparison makes the adjustment easier. Say EURUSD prints 140 pips on a Fed day against a 20 day average of 70. If the next session's first three hours cover only 18 pips, a 12 pip target is asking for two thirds of the whole morning, and that is when setups get stretched.

One way to keep targets honest is to scale them to the morning range instead of a fixed pip figure. A cap like no target bigger than 40 percent of the range so far shrinks automatically on a flat day.

There is an exception worth planning for. When the big day closes near its extreme, the next morning sometimes extends the repricing instead of going quiet, so the plan should say what a genuine follow through looks like rather than writing off every day after.

A hard cap on trades does most of the work though. Halving the normal maximum for the day after a big event removes the restless extra entries without needing willpower in the moment.

Do you also cut size on that day, or keep size and only cut the number of trades? Those two choices protect against different mistakes.

[Shadow Trader]

There is a money side to this as well as a volatility side. After a big winning news day, the next morning carries a cushion, and the cushion quietly turns into a bigger daily loss limit.

Say the Fed day made 4R and the usual daily stop is 2R. The thought on the quiet day is that losing 3R still leaves the two days up 1R, and that sum is exactly how the stretched setups get funded.

Keeping the daily stop at its normal 2R no matter what happened yesterday closes that door. Each day gets judged on its own, which also fits the point above about treating the new session as its own chapter.

The losing version is worse. If the news day cost 3R, the quiet day becomes a recovery attempt, and small targets on a slow market are the worst tool for winning back three units of risk.

For that case an even smaller trade cap, perhaps two attempts, works better than the normal halving. Does anyone also hide the previous day's P&L from the platform before the session?