Overtrading Sucks – How to protect yourself from overtrading

In this article, you will learn what overtrading is and how to protect yourself from overtrading in day trading. It will affect your psychology and account.

Man is already a weak existence within himself.

There is no discipline. But it is characterized by fear and greed.

What was an important quality thousands of years ago has now become an obstacle. We no longer need to protect ourselves from wild animals (or people) around the clock. In a functioning democracy, the state will take care of this. Nevertheless, these emotions still strongly affect our daily lives, sometimes more and sometimes less.

Anyone who has made a few transactions with their own money knows how much harm you will suffer when you lose money. Especially if the position size you choose is too large. Starting a series of bad transactions can quickly lead to “overtrading”. But before we start, we need to distinguish between excessive transactions in daily business.

Caution: Danger of confusion: Overtrading in everyday business life

Anyone who googled for the term will have noticed that it is also used in business.

Especially startups that are growing quickly can get this problem.

Overtrading is used here when a (young) company grows too quickly and does not have the financial resources to cope with this rapid growth.

And now to overtrading in stock exchange trading …

What is overtrading (Forex/Stock market trading)?

As a trader, you can decide whether to trade at any time. If you have been trading for a while, then you will know how important it is to wait for the so-called 5-star setting.

In these settings, all parameters prove that trading entry is reasonable and the chance of trading winning is high. Many beginners have two questions about this:

They don’t know what a 5-star setting is or how to find it. They have no patience to wait for the 5-star setting. As an intermediate conclusion, we believe that:

Beginners (even advanced traders) trade too many arbitrary options and do not conform to the settings of any proven strategy. Therefore, the results are affected by emotions and opportunities. In short, this method will lead to many false transactions.

What happens in your mind when you experience 3 failed transactions in a few hours?

You will be angry and at the same time afraid of missing another deal.

Anyway, you want to make up for this loss and simply open 1-10 more trades, because this time it must be resolved in some way. With the permanent opening of further transactions (not corresponding to the 5-star setting), you enter a downward spiral. You don’t know what you are doing in front of the screen. You can no longer concentrate, your mental state is so bad, you are no longer your own master.

This is a classic over-trading. At the end of the day, you may have made 10-30 transactions, of which at most 1-2 are technically clean. Your account is very red, leaving a big question mark!

How to protect yourself from overtrading?

So, in overtrading we’re talking about a internal element that’s the trigger for a disastrous result.

Far too numerous trades are made in one day.

The first question you need to ask yourself BEFORE making any trade is

Is this really a 5- star setup?

You can only answer this question if you have a proven strategy and know what the parameters are. This can be a combination of chart technique and price action, perceptivity into volume or times & deals, or another strategy.

Still, you have successfully learned the first step against overtrading, If you also (theoretically) know what kind of trades you should make and which you should refrain from.

Now it’s over to you and your discipline how important you stick to the 5- star setups. You shouldn’t trade anything differently.

Depending on your trading style, there are no further than 1-5 good trading setups per day, knowing that the scalper has a advanced trade frequence than the swing trader.

From now on, try to reduce the number of your trades and lie in wait for clean setups.

To put it vividly, you are a hunter, sitting in a high position until the game (=settings) appears. Whether it takes 5 minutes or 5 hours is up to you!

If you notice that you have slipped back to over-trading, it is best to leave your desk immediately and distance yourself. Go out for some fresh air, drink some water, and think about whether it makes sense to return to your desk today.

Remember: There are new opportunities every day!

Good Luck!