Trading realityUpdated 2 min readBy the FXNOD team
Overtrading: what it is and how to stop
Overtrading means taking more trades, or bigger trades, than your plan and the market justify. It comes from boredom, chasing losses, overconfidence after wins and the belief that more activity means more profit. Each extra trade adds cost and is usually a worse setup. The cure is a limit decided in advance: trades per day, and a written checklist.
Two kinds
| Kind | Looks like |
|---|---|
| Too many trades | Entering without a setup, trading every small move, never sitting out |
| Too much size | Positions too large for the account, often after a loss or a run of wins |
Why it happens
- Boredom: nothing is happening, so you make something happen.
- Recovery: a loss you want back now.
- Overconfidence: three wins and the rules feel optional.
- Fear of missing out: the market is moving without you.
- A belief that a trader is someone who trades, constantly.
What it costs
Suppose your planned setups have a small positive expectation and each trade costs 1 in spread. Five planned trades a day cost 5. Add fifteen unplanned ones with no edge and you pay 15 more in costs for nothing, before counting the losses on poor entries. Many traders are profitable on their planned trades and unprofitable overall.
Signs you are doing it
- You cannot say which setup a trade was.
- You enter again within minutes of closing.
- Your number of trades rises on losing days.
- You trade outside your usual hours.
- Your journal has gaps on the days that went badly.
Rules that stop it
A maximum number of trades per day
When it is reached, the day is over, win or lose.
A written checklist
No box unticked, no trade.
A daily loss limit
In money.
A break after every trade
Even five minutes interrupts the impulse.
Fixed trading hours
A start and an end.
Overtrading with a bot
A bot is the purest overtrader there is: it will place a trade every few seconds for as long as it is allowed. On a contract with a cost built in, more trades means more cost, with certainty. Give it a maximum number of trades or a profit target as well as a stop loss, and do not restart it because a session has ended.
In business, the same word means something else
In accounting, overtrading describes a company growing sales faster than its working capital can support. It is unrelated to the trading sense used here.
Questions people ask
- How many trades a day is overtrading?
- There is no fixed number. It is overtrading when trades are taken that your plan does not call for.
- Why do I overtrade after a loss?
- Because the mind wants to return to even quickly. A fixed daily loss limit and a break remove the opportunity.
- Is trading less more profitable?
- Usually, for discretionary traders. Fewer trades means lower costs and a higher average quality of setup.
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