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The Dark Side of Overtrading: Why More isn't Always Better

Updated: Nov 24, 2022



 

Overtrading has been described as one of the biggest mistakes that new traders make. But why? Why do we always hear about this issue and what's so terrible about it? What are some tell-tale signs that you may be trading too much? To answer these questions and more, I turned to ZenYen, an experienced trader and author of the book Zen and the Art of Trading. With ZenYen's help, I put together this list of questions and answers that can help you avoid overtrading. Let’s get to it!...






First, why do we trade?


Trading is a form of speculation in which an individual attempts to profit from short-term fluctuations in the price of a security, currency, commodity, or other financial instrument. Trading can be used as a hedge against various types of risk and to generate long term returns.


Second, how can I help my overall performance?


First, you need to figure out how much time and resources you can realistically afford to spend on trading. For example, if you have a full-time job that requires 40 hours a week at your desk, then it's not realistic for you to be spending 5 hours a day trading. You should instead be focusing on the best trade opportunities during this limited window of time (e.g., the morning). Second, think about what is important to you in the long run.


Third, can I be more productive?


Yes! There are many ways to increase your productivity. One is to take advantage of the Pomodoro Technique, which is a time management technique that uses a timer to break down work into intervals with short breaks in between. The idea is that working in sprints (25 minutes at a time) leads to increased focus and creative thinking.


Fourth, why overtrading doesn’t work


A common misconception about trading is that more trades are always better. This could not be further from the truth. In fact, overtrading can actually hurt your account by increasing transaction costs, triggering margin calls, and decreasing your ability to make a profit on your trades.


Final thoughts on overtrading


Overtrading is the act of trading in a security more frequently than what is needed to provide an accurate representation of its underlying value. This can happen for a variety of reasons and may be considered bad depending on the situation. Oftentimes, overtrading happens as an attempt to make up for losses, but this only compounds the problem by creating more opportunities for losses to occur.











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