So I’ve read that you should not overtrade as it is not healthy for the account balance. BUT, how can you tell when you are overtrading?
Is it overtrading when you go into positions that match with your trade trigger conditions even though it seems to happen more often than usual?
Or is it overtrading when the total trade risk exposure amount in aggregate is more than what you normally would risk, even though the trade entry based on your system is valid?
Any good pointers guys?
Unsure
Haz
Hi Haz,
A blogger/trader has just written something about this; Are you overtrading? (a hint, you might be if your shoes are wet)
While I think different traders may have a different definition I think most can agree that you over-trade when your total risk exposure is violating your risk management profile. Your entries may be in line with you strategy, but having too many positions open and exposing your account to an excessive amount of risk is counter-productive.
First thanks to @jalapenoninja for sharing my link, and it is a shame this wasn’t discussed more as it is one of the biggest factors in sudden account death syndrome. For me personally, if I am tired, trading frequency increases, so it is usually a good indicator outside influences are hurting my trading account and decisions.
My simple minded risk management rules won’t allow me to over trade. I have several that serve to limit my euphoria. For instance, I never use more than 1/2 of available margin. If I hit that limit, I have to close something to open something else. If you need to ask if you are overtrading, I suspect that you are. My suggestion would be to tighten up your entry criteria and money management rules as needed to both improve your return and reduce overtrading. There are many things you can’t control in the markets, like price direction and speed of change, but there are some you can control and it’s a requirement that you learn how to control your risk to survive in this business. Of course, that’s just my own humble opinion.