Risk Management, Tips, Trading Education, Trading Tools

Over-Trading and How to Stop It

position sizing and overtrading

Many aspiring traders don’t reach professional levels because they overtrade. They feel the more they trade, the more chances they will have to make money. This is incorrect. There are periods when the markets are calm and as a result, there are fewer trading opportunities. During these periods it is easy to point out the experienced traders from the novice traders as the experienced traders know that this is a period where they can monitor the markets and trade but invest more time in research and education. The novice trader, however, forces themselves to trade despite the lack of trading availability. More often than not, forcing trades results in trades that are bad. In order to be a successful trader, it is crucial to understand that just because one trades more does not mean that they will make more money. 

4 Steps to Identifying Over-Trading: 

  1. You are Making Badly Educated Trades

Do not begin trading with markets or in methods that don’t match the previous strategy. No matter what standards should not be lowered when it comes to trade. If the highest quality trades that you are the most educated in aren’t available do not settle for less. Additionally, you should not be trading markets you have no experience with. All markets have their own specific volatility and behavioral rules that you won’t understand if you just pick up and begin to trade them. In the same way, someone who is a doctor can’t switch professions to a lawyer as they don’t have a law degree you too can not switch from trading the USD/ EUR to GBP/JPY. It just won’t work as you don’t understand the system. If you just jump in and begin trading you are guaranteed to lose money. 

  1. You are Taking Trades that Exceed your Maximum Risk Limits

The significance of managing risk while trading can not be stressed enough. If you forgo this value and crucial aspect of trading in order to make more trades you will for sure lose money. One of the few things in the market you can control is your risk management and thereby if you give up that control you have let the market swallow you up. Truly, if you allow yourself to exceed your maximum risk limit in a trade just so that you can make a trade you need to stop trading reevaluate your trading methods and then go back. 

  1. You feel it

As a well-educated trader, you understand when you’ve made a good trade and when you’ve made a bad trade. If you exit a trade and know that you probably shouldn’t have taken that trade, to begin with, that is a clear indicator that you are over-trading. Instincts are what makes traders excel, don’t let yourself lose your good ones.  

  1. Your commissions getting more expensive

Every time you enter the market to trade, there is a commission you have to pay. As a result, if you’re constantly going in and out of trades then your commissions increase exponentially. The commission percentage from your profit becomes much more significant. It is clear from this percentage that you’re probably overtrading. Simply by trading less your commission will go down. Additionally, when you’re not spending a significant portion of money on commissions you have extra money to spend on improving your trade through investing in tools and education. It is clear that in trading there is not constant trade opportunity all day long, so it’s better to invest in other stuff that can help you figure out when the opportunities occur as opposed to spending time and money on dealing with increased commissions. 

Preventing Over-Trading:

The best way to prevent you from forcing trades is to be aware of your trading habits. Know if you are falling into the trap of over-trading and quickly pull yourself out of it before you do too much damage. Additionally, continue to follow your trading plan and strategy at all points of a trade. Keep a journal of your trades so you can go back and ensure that you are trading according to plan. Additionally, this will help you look back on what good trades look like. It can help you ensure you are always trading at the same quality level. 

Another method to prevent over-trading is to plan your week in advance. Instead of chasing setups throughout the week, they can just sit back and wait knowing well that they have a plan and their actions are not spurred of the moment ones.  

Lastly, it is also important to have other hobbies and skills to enjoy when there are the inevitable calm periods of trading. Go for a walk or a bike ride, pick up a new skill or focus on personal hobbies. Basically, just don’t sit in front of the screen waiting to make a trade. 


This article outlined the steps to identifying over-trading and gave insight and methods in order to prevent it. Overtrading is extremely detrimental to trading and it is crucial that you are able to identify it and prevent yourself from doing it as quickly as possible. If you ensure that you are trading on a well-timed and well-educated plan you are guaranteed for successful trading.


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