As the title suggests, in today’s episode, we focus our attention on the topic of how to stop overtrading!

A lot of the feedback we hear from our community of traders on Youtube is that overtrading is something that they regularly struggle with…and we get it!

New traders often enter the industry enthusiastic to start trading and making money – but this enthusiasm can be a double-edged sword at first.

Why? Because when you are new and you see markets moving, you want in – you’ve always gotta be in a trade to be a trader right?

WRONG – in fact, one of the things we hear quite often from TRADEPRO members is that they are surprised at how little we actually trade throughout the session.

And there is a good reason for this! Want to know why? Well, it’s really quite simple – we are only looking to take the highest probability setups – anything else is just noise!

But does that mean that experienced traders are immune to overtrading? Not in the slightest – they have just learned to identify the patterns that trigger the overtrading so that they can manage them as soon as they start to surface.

At some point, you've just gotta realize..every time I do something it leads to a loss, why would I continue to do more of it and I think that's what overtrading is all about. Click To Tweet

So what is overtrading and what are its true costs?

Well overtrading in itself is simply the act of taking more trades than you have allotted for in your plan.

The true costs for day traders, however, can be split into two main categories:

1.  Financial Costs (Extra Commissions Paid)

Paying commissions is one of the costs of doing business, however, getting trigger happy will keep your broker paid and your account in drawdown.

As daytraders, we are the most sensitive to commissions which is why we prefer the “less is more” approach to the markets.

Sure you can make a bunch of points on a session but there’s a difference between doing so in one or two trades versus clawing your way out with ten or twelve!

When you start to focus on the higher probability setups then you will find yourself filtering out a lot of those lower quality setups…which means that you will be more paytient going forward.

This means that there may be fewer trades, but the ones that do pass the qualifying process will likely be worth the capital you risk.

2.  Psychological Costs (Ingraining Self-Destructive Trading Habits)

More costly than losing actual account capital is ingraining bad trading habits by overtrading and throwing more good money after bad money. 

A majority of the time when we overtrade or see other traders overtrade, there is a good chance that those trades did not fit in with the trading plan.

In our experience, these trades are often lower quality and lower probability trades that are often the ones affecting your bottom line.

By falling into the habit of trading emotionally and losing money you are effectively programming your subconscious mind to believe that closing out a trade as a loser is bringing you closer to safety. And so the self-sabotage cycle begins to unfold until you are mentally drained and considering quitting trading altogether…

But there’s hope! We’ve got your back here at TRADEPRO Academy so now that you’re familiar with the true costs of overtrading, let’s talk about some of the common reasons that day traders tend to overtrade and how to overcome this bad habit!

So what are the main culprits that we tend to see?

  1. Not having a strategy
  2. Lack of patience (boredom)
  3. A situation where you NEED to make money
  4. Overenthusiasm to start
  5. Revenge trading (Need to make money back immediately) 

If you find yourself struggling to keep control of your emotions while trading, take a good hard look at the list above.

Be honest with any of these reasons relate to your current experiences? If so, make a note of that, you’re making progress!

So what are your next steps? Now that you have a better idea of what you need to work on, it’s time to take action!

If you don’t have a strategy, the solution is quite simple… it’s time to treat this like a business and to put together a plan. If you need some help with this step – make sure to check out this link to get directed over to our YouTube series on making a trading plan.

If you find yourself overtrading as a result of being bored, feeling a need to be in the market and trying to force trades, then you’ve likely got to work on revising your trading plan to manage this habit.

One effective solution in this scenario is to make it a habit to ask yourself this one question before you place a live trade: “Am I taking this trade because I am bored or because it fits my trading plan?”

If the trade in question does not fit your plan, then you don’t take the trade! Seems too simple right? Humans tend to dismiss simplicity in pursuit of complexity so why would something so simple actually work right?  Try it for yourself and judge the results on your own!

If you’re in a situation where you NEED to make money from trading in order to put food on the table and pay rent, then you are putting yourself in an extremely difficult position to succeed.

Putting this type of pressure on yourself will greatly affect your performance as your psychology will get in the way of success. If you find yourself in this scenario, then it’s best to take a step back and evaluate your financial picture. If losing the trading capital in your account means that your family doesn’t eat then you are risking too much of your net worth. The general rule of thumb here is to have no more than 10% of your net worth in accounts used to speculate the markets.

So you’re new to the markets? Just learned a new strategy or indicator and ready to start printing your millions? We get it.. we were there once! Enthusiasm to get started can be a double-edged sword for newer traders! This goes back to our earlier point about the misconception that you always have to be in the markets to make money. Being too enthusiastic to make money off the get-go is a recipe for overtrading, especially, in slower markets conditions when opportunities come few and far in between and boredom starts to creep in.

It’s very easy to get sucked into the markets and try to force trades, however, the fix to this is for new traders to focus on remaining disciplined and executing their trading plans flawlessly. Remember that process always precedes profit!

Finally, if you find yourself overtrading as a result of taking a loser and having to make it back immediately, whether it’s a fat finger error or a clean loss, then it’s important to identify the behaviors that trigger this habit before they cause more damage.

Revenge trading can really drain your account regardless of the market conditions so it is important to come up with a plan to manage your emotions as you notice them creeping into your trading ever so slightly. Many traders have developed unique safeguards into their trading plans to help them manage these emotions. One such example is to enforce a time-out rule where you step away from your screens for 5-minutes after taking a loss. This will give you the opportunity to brush off the loss mentally, clear your mind and come back refocussed on taking advantage of the next best opportunity that the market provides.

Remember that in order to stick around in this industry, we have to constantly adapt ourselves as traders! Managing overtrading is one of the challenges all traders face and that’s exactly what you’ll learn to do today!

In This Episode You Will Learn

  • What is overtrading? 3:47
  • The true costs of overtrading 07:40
  • Why not having a trading plan leaves you vulnerable to overtrading  22:05
  • Why boredom and lack of patience are the gateways to overtrading 25:47
  • How over-enthusiasm can lead to overtrading 40:30
  • How to identify and manage your revenge trading triggers   46:30

Some Questions We Discuss

  • Why it’s more important to stay patient when the markets are volatile? 06:25
  • Why ingraining bad trading habits is more costly than actually losing money? 15:20
  • Why overtrading creates a bad sequence of habits? 18:45
  • How traders who suffer from a lack of patience can overcome boredom trades? 26:20
  • Why putting yourself in a position where you need to make money trading can be destructive? 34:00
  • How we at TRADEPRO Academy manage overtrading in our own plans? 52:00


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