A Brief word on Overtrading...

Over Trading... I can honestly say that my biggest losing days were the result of better reasoning going out the window which lead to reckless behavior in the form of high leverage and (way) too many trades.

Since I can't speak for anyone else... The reason's I've over traded (All which have nothing to do with making money...) are as follows.

- Wanting speed up results (using too large of size)
- Not accepting/acknowledging a losing day (leads to more losses and more trades... Objectiveness goes out the window
- Not accepting i'm wrong about the day, the trend, etc
- Needing to be right about my Analysis/projections
- Too excited, euphoria
- Revengful, wanting to make up a previous losing day.
- Fear of missing out on a trade
- Trying to take every signal my "system" provides
- Getting side-tracked in other methods

While my tendency to over trade is on it's way out vs my entire trading history, all it takes is 1 day where my better judgement goes out the window to ruin a healthy performance.


As an exercise to see if my suspicions about over trading were correct I put together the attached excel sheet showing just my profit/loss per day and the # of trades in that day.

You'll notice an uncanny correlation between big (red) losing days and the volume spike in trades.

On the other hand there are a few days with great results and which also have a higher than normal number of trades but that's just a FEW days, so it's safe to say that those days were the result of being on my game, but at the same time that the risk worked in my favor the extra trading activity wasn't really worth it.

So in short it's never worth it to over trade!

In fact, if i had tracked my total risk on each trade as a sum vs the total reward on each trade for the winning days with a high volume of trades, i'd be willing to bet that the overall risk taken is also a large and obvious correlation.

Also worth noting are the exercises attached wherein if I had honored my max risk per day pf -1k, or -5% of my account balance then I would be up approx 5k, or 25% over the past 3 months.

Also worth noting is that had I taken even less max risk per day of -3% -$600, I would be up even more... Closer to 8k or 40%.

Of course the risk taken is relative to the return but it's interesting that less risk actually meant a greater overall return.

So there's actually 2 key lessons to this, 1 is to have reasonable risk levels and honor them... The other is to take fewer, higher quality trades, reducing the leverage and maximize the edge.

Just slow down, maintain discipline, and reap the rewards!

 

Exercise attached.

 

Exercise Attached

 

you need a smooth equity curve...this is whack

 

This was posted on ET a few years ago:

“Being disciplined in the past isn’t good enough: on each and every trade you must be disciplined. Forever. Like a drunk in a program you can NEVER slip off the wagon.”

 

I think it's about only trading when the market is clear on its intentions.

Naturally, discipline plays a very big component in all of this, but so does noticing when something is far from clear.

Flat can be a lovely position at times, not making any is much better than losing.

 

I think overtrading is lack of proper backtesting and right questions to ask of oneself from the backtesting.

Breaking down what is the "mean" number of trades in segments of the session one trades, whether it be by the hour or morning, lunch or afternoon session in my case. By doing so your data can tell say if reduction of risk, deeper retracement such in lunch session, smaller targets, reduction of signals, reduction of contract size.

I know in my own trading if I start getting too many signals is clear sign of chop, so that tells me to either stop trading or revert to chop signals. Bollinger bands going sideways easily show chop or ADX under 30, not making higher highs/lows or lower lows highs is chop.

Must be disciplined, have to think of yourself like a train on tracks and confined to the tracks. Must be able to see the signs of yourself starting to wiggle away from the tracks and stop trading, the commissions will eat you up and small losses do add up. Go make yourself a healthy drink, take a walk and come back in an hour.

 

Well, trends can turn into chop, and chop can turn into trends.

 

Your "apparent" $1,000 daily loss limit is too large. :eek:

 

Right, those are the reasons that can lead to overtrading, but what you are talking about here is really the lack of self-discipline.

For instance, the first and last items on this list are examples of that. They do not necessarily need to lead to overtrading, but they are not helpful either.