Whats your definition of overtrading?

Discussion in 'Trading' started by ER9, Oct 24, 2005.

  1. ER9


    Would you define it as trading too large a percentage of your account or trading too frequentlly or both?

    I always assumed it meant trading too frequentlly but i read an article today that defined it by example as trading too high a percentage of account size for any given trade.
  2. Although some may disagree, I would start with percentage of commissions to gross profits (losses).
  3. It's none of those things. Some strategies are meant to have high capital turnover and to trade very frequently. High frequency trading will result in a large % of profits going to commissions, but that may be by design.

    Overtrading is trading just for the sake of trading, not when you have a set up that meets your plan. If you don't have a clear setup, but you enter because you think it still looks ok, or you are bored, you have overtraded, even if that was your only trade of the day.
  4. Hi Lescor,

    I also agree that this is overtrading.

    Therefore, I don't think it has anything to do with a dollar amount (commissions or capitalization).

    However, there's also a difference using too large of a percentage of one's trading acount versus the above definition of overtrading.

    Thus, there's a difference between being Over Capitalized versus Over Trading.

    Here's an example of overtrading...

    If I'm averaging 3 trade signals per day via my trade methodology and then one day I do 4 trades with one of those trades as an intuition trade (not part of the trade methodology)...

    Then I've overtraded by one trade.

  5. ========================
    The first thought you wrote would be considered money management;
    lescor has a good definition of overtrading.

    The magazine writer simply sounds like ,however helpful he may have been;
    sounds like he overwrote it, probably got paid by the word:D

    Perhaps investors lose more wrongly by undertrading;
    perhaps traders lose more monev wrongly by overtrading.
  6. 40-50% of your gross going to commission is stupid in my opinion. you will lose in the long run.
  7. ER9


    Thats what i thought. My personal definition for overtrading always was higher frequency due to trading outside a plan. Now that you mention it though the article was about money managment. I might have misread, misunderstood and got confused.
  8. Not necessarily true. It totally depends on the strategy. If you can identify a tradeable edge that executes a lot of trades for a small net profit on each one, why would it matter what % is going to commissions? You're still making money. It's the bottom line that counts, not the margins you use to achieve it.

    It's like saying WalMart is stupid because they only make 10% profit per item and you sell stuff on ebay and make 70%.
  9. If you are having a high percentage of winners AND the average gain is larger than the average loss, that's good.

    If you are having a low percentage of winners AND the average gain is *several times* the average loss AND the overall results are positive, that's good also.

    Any other result must be scrutinized as potentially overtrading.

    Trading frequently isn't necessarily bad. You can trade a lot and do well, or you can trade a little and suck.
  10. swcom


    Insert grain of salt here>

    Overtrading is good - when you are profitable.
    Overtrading is bad - when you are not profitable. For simplicity's sake . . .

    Overtrading is when you have met any of the following conditions:
    1. You feel the need for excitement, and are entering marginal positions.
    2. You have made at least 25 round trips in one day, and are still without a profit.
    3. You are consistently trading sideways/flat; the commisions will really start to eat at your account here.
    4. You do not know when to quit.
    5. You have not been outside in over 24 hours.
    6. You have cashed out your 401K/IRA to trade with.
    7. Your account goes to $0.00
    8. Your broker is the only one making consistent profits.
    9. Your signals are jacked, but you still believe them.
    10. You fail to realize what overtrading is.

    Notice the recurring use of the word "You"!

    So, if this is overtrading, is under-trading when you leave $ on the table, or when you say "coulda, shoulda, woulda"???

    One can not say that not trading is under-trading. Conversely, there can not be one definition of overtrading:
    If you trade for profit- more is more; less profit will result in less trading opportunities. . .

    Overtrading is most likely in the eye of the beholder, or at least reflected in their EOD PnL.
    #10     Oct 25, 2005