Is Overtrading Really Bad?

[chris_808]

I kept reading from trading books, to these forums, to online trading help about avoid 'overtrading' how it is a trading sin. How if you aren't selecting the very best trades your portfolio is doomed. Well I say that that is stupid. And my logic is this:

All I care about is how much profit I take home each day (on average). And it seems to me overtrading increases that value. Sure overtrading will mean that your profit/trade will go down, but who really cares about that, as long as you are making more money per day. Trying thinking about it like this: there are bad trades, good trades, and great trades. If I sit around waiting for just the great trades I will make $x a day. But if I trade the good and great trades I will make $x+y a day.

So what exactly is the argument against my reasoning that would support the idea to not overtrade? Please enlighten me because I would really like to know.

 

[Calinor]

There is nothing wrong with trading a lot if that is part of your successful system. There are scalpers that seem able to do this. But when they say overtrading, I think what is meant is trading when your system hasn't told you to and trading just because you like to be in the market. I made a trade yesterday on the FTSE, not because my system told me to, but because I had just lost, and wanted to make it back (yes I know that is stupid, but I'm learning and fighting these instincts). I lost that trade too, so that was overtrading and definitely bad.

I think another reason for waiting for the very best trades, is that the ones that are just good, can turn against you and are damaging psychologically. Whereas the really great trades should work out better for you psychologically. I have taken trades where everything lined up just perfectly, and as soon as I've entered, price has shot up in the right direction almost immediately. Those ones are nice

 

[gle101]

I think overtrading is when you side step your own money management strategy. There might come a string of losses, if you are overtrading you might burn your entire account.

 

[nine]

Yeah.

Overtrading is when you have a strategy that says "I'll do 6 trades today" and you do 12. Or your strategy says I'll do 50 and you do 150.

But generally it wouldn't be bad if all 150 met the criteria you planned for the 50. The issue is that its normally associated with:
- taking trades that excite you but don't meet your plan
- taking revenge trades
- not planning your entry and exit before you trade.

So its really more qualitative than quantitative - if it doesn't feel like you took more trades than you should have then you probably aren't overtrading.

 

[donovan5]

I think the reason it is said to be bad is because people are jumping in and out of trades looking for small % profits often missing the big moves only to jump into a new trade which makes them less.
Obviously for scalpers and day traders this is fine but I think it is a small minority of people who can successfully do this as a long term strategy

 

[Rossini]

I kept reading from trading books, to these forums, to online trading help about avoid 'overtrading' how it is a trading sin. How if you aren't selecting the very best trades your portfolio is doomed. Well I say that that is stupid. And my logic is this:

All I care about is how much profit I take home each day (on average). And it seems to me overtrading increases that value. Sure overtrading will mean that your profit/trade will go down, but who really cares about that, as long as you are making more money per day. Trying thinking about it like this: there are bad trades, good trades, and great trades. If I sit around waiting for just the great trades I will make $x a day. But if I trade the good and great trades I will make $x+y a day.

So what exactly is the argument against my reasoning that would support the idea to not overtrade? Please enlighten me because I would really like to know.

You do not talk about risk, which is the most important part of all.

 

[shadowninja]

Have you never had the demon take you?

OMG Chase the market. Can't miss out. Go long! Argh. Go short! Short again. Win back my losses. Can't lose. Quick, double size, more profit to win loss back quickly... Ooops, down 500 pips on the day.

 

[gle101]

Have you never had the demon take you?

OMG Chase the market. Can't miss out. Go long! Argh. Go short! Short again. Win back my losses. Can't lose. Quick, double size, more profit to win loss back quickly... Ooops, down 500 pips on the day.

Ha Ha! Yes, I guess we have all been there.

 

[montmorencyt2w]

It would certainly be bad if you were undercapitalised.

 

[new_trader]

And it seems to me overtrading increases that value.

Yes, profits & LOSSES. Until you are extremely proficient you will have many times more losses than profits. Do the maths...