But what EXACTLY is overtrading anyway?
@dpaterso says “The term overtrading has nothing at all to do with the sheer FREQUENCY of trades in any given day. If you know what you’re doing then it doesn’t matter how many or how few trades on any given day as long as you’re making an overall profit of course. The term overtrading specifically refers to having TOO MANY OPEN TRADES AT ONE TIME such that too much margin is being reserved for those open trades and therefore putting you at risk of a margin call. This being said: the term is sometimes also used to describe trades that are far too big for your account size (although one could argue that this is the same thing really).”
To answer the question though, to my simple mind the problem with it is that it has this funny tendency to regularly BLOW ACCOUNTS!!!
Overtrading leads to excessive borrowings and more stress.
Over trading can lead to the following issues:
1 Investing heavily in capital before generating revenue.
2 An unexpected surge in demand or seasonal business trends.
3 A significant increase in stock.
4 Underestimating the business costs.
The consequences of over-trading include increased size of trades, diminishing margins of safety, and stress and anxiety so one should be careful about his/her limits.
Thank you for explaining the psychology behind overtrading. Knowing this will surely help us to stop ourselves before we cross the line and get addicted to overtrading. We must stop trading after a couple of wins or losses. You should put a limit on the maximum number of trades you can take up for a day irrespective of the result. This will help us to build discipline and refrain from emotional trading.
Over trading impacts your mind’s focus which in turn builds up stress and your normal decision making starts to get hampered so I believe we should set some boundaries and timelines for trading.
Over Trading is something to blame for when you has losing streak
Over trading is dangerous and it can quickly turn into an addiction where you keep entering trades one after one even when you are constantly losing. You must let go of this habit and set a limit to the number of trades you can take up for a day. You should not exceed that limit no matter what.
Overtrading leads to unnecessary risks. I personally try maintaining a journal to avoid overtrading.
Overtrading leads to excessive borrowings and increased mental stress.
Overtrading is often the result of greed and later it turns into a kind of addiction which can be dangerous. We must be setting some rules to limit our max number of trades per day and that will keep us away from impulsive trading.
Overtrading is like slow poison for a trader. It will slowly eat away all your capital and can even cause unnecessary stress and affect your mental health. One should set a limit to the number of trades they can enter for a day in order to get rid of this habit of overtrading.
Overtrading can not only put the account at the risk of blowing up, but also affect the efficiency of trades, as well as the mental health of the trader. Trading too much can make the trader feel exhausted - both physically and mentally, putting productivity to its maximum levels, thereby reducing proper decision making ability. As a result, the chances of loss increases, which further can cause anger, frustration, and revenge trading.
Over trading can lead to traders becoming addicted to the market. This is because they can get caught up in the excitement of the market and start to feel like they need to be in it all the time. This can lead to them making bad decisions and can ultimately lead to them losing money and becoming stressed.
Overtrading can become an addiction for a trader in search of more money.
Hey buddy! Can you give some tips on how to avoid overtrading?
Develop a good risk management strategy and avoid emotional trading.
Problems of Over Trading are:
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Productivity pushed to max
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Increased stress level
Great post but it’s more about the causes of over trading and ways to prevent it.
Talking about the problems,
While over-trading traders lose the track of the trading costs, profits and losses and mostly end up making heavy losses because of that.
They also lose the ability to analyse the trade with a calm and logical mind. They just can’t resist the urge to act upon and when they lose they trade again to make up for that. This vicious cycle keeps going on.
This eventually affects psychology. As @Akio19 said, bad trading results will increase the stress level.
Thank you for great explanation buddy!