Everyone will have different answers, but early signs are simply is the trading profitable? If so, does the month start well, but then end with losses, so would stopping earlier in the month have been more profitable? Some HF traders take a few days out at the end of the month to reboot. Do you still look forward to the trading day? Do you have time for the other things you want to do in life?
One of the great benefits of trading is work-life balance, and another great benefit is that you can make a lot of money. If someone who has been trading for any reasonable length of time is missing either one of those elements then overtrading could be the issue, or one of the issues.
Trading should not dominate anyone’s life to the exclusion of all else, imho, as that will lead to burnout and be tough to sustain over even the medium term. A lot of traders - myself included - say that they now place fewer trades than when they started out, yet make more money (both in absolute terms and as a percentage return). So you are right to give this area prominence in your thinking, but it is tough to design something into your system that will make overtrading less likely. It just takes discipline, a clear head and faith in the underlying strategy.
Once you get to the point of genuinely believing that a handful of trades a week can make a lot of money, it is easy to resist placing 20 trades a day. (Scalpers are obviously going to need a different set of numbers etc., but I still think that they need to ensure that some time away from the screen is built into their approach.)
This is a big area and this is an off-the-cuff answer, so I won’t pretend to have covered all bases!
To my mind there are two ways to over-trade. One is to trade too big. The other is to trade too often.
The too big thing is a risk management issue and you can generally tell you’re doing that if there’s a lot of volatility in your account equity from period to period.
As for too often, there are a number of indications. Top of the list is trading because you want the action. It takes a lot of self-awareness to catch on to that one sometimes, but if you find yourself looking for a trade to do rather than waiting for a trade set-up to appear then you’re almost certainly over-trading.
I also think that as long as you are trading [B]valid[/B] signals/set-ups that are within your own trading method or style, then the number of legitimate trades that you take is down to the price action that occurs within a given month. Using a real example from my own trading; some months I will get as little as four signals in a single pair within a month, and other months I will get up to 15 signals.
Am I over trading based on the 15 signals, well…no, not really. Im trading valid set-ups that are presented to me.
As for any trading method, system, strategy,…call it what you like, without having a solid trading plan in place you will find it very hard to establish if you are over trading. This really is a big can of worms, and I can already see this topic spreading into so many sub-sections…
I agree with you to a point, although there needs to be a good money management strategy in place, obviously - a rookie trader (which obviously you are not, so this is not aimed at you!) could get into deep water pretty quickly if they just took every setup that the market offered. One element of my approach is to have a limit on my exposure to the market at any one time. A beginner might risk 2% of their trade, find 10 setups, take them all and have 20% of their account open on the table. If they have read something incorrectly in their analysis, or have failed to recognize that there is some big even imminent such as a major bank intervention, or an earthquake happens that obviously they can’t predict, then they could take a 20% hit which could savage their psychology.
A more experienced trader will understand why they have a certain amount of exposure at any given moment, really understand it, and be prepared to take any loss in context, as just one of those things that happens. So for me overtrading should be judged in context - 5% account exposure might be too much in one’s first week of trading, but normal three years in. (Or not, that is just an example!!)
But to be clear I agree with where you are coming from, my trade numbers fluctuate for the reasons you gave, I just thought that I would presumptuously add the context point!