Get Rid of Overtrading Once and For All

By Galen Woods ‐ 4 min read

Have you been taking too many trades and losing too much money? Get rid of overtrading once and for all with our simple action plan.


Overtrading refers to taking so many trades to the extent that the trader’s edge erodes. It is bad for all kinds of traders and even investors. But it is truly a cardinal sin for day traders.

I know this day trader called Hubris. He has always been a profitable trader, or so he claims. Hearing that he is such a wonderful trader, I grabbed the chance to watch him during one of his trading sessions.

Yes! 2 points in pocket. This is easy.

Let’s see… oh, there’s another trade over there. I’m shorting right now, just in time.

Ah, lost a point. We’ll only get better. See! Right there, there’s a chance to recoup my losses.

Sheeeesh, two losses in a row mean that the next trade will be a winner. I must continue.

At the end of the session, Hubris wonders how did he manage to wipe out 30% of his trading account in a single session.

Does Hubris’ experience sound familiar? Does it sound like you?

If you answered yes, then you might be able to make vast improvements in your trading performance after reading this article.

The Root of Overtrading

Unrealistic expectation of market volatility

Day traders need volatility to make a living. When the market is not going anywhere, we should not trade.

However, because of a lack of understanding of the market and the need to trade, traders rationalize and tell themselves that the market is going to move.

Dr. Brett Steenbarger, the author of The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist, explained this mismatch of expectations really well on his blog.

Overestimation of trading skills

This is Hubris. He thinks he cannot lose, and is invincible in the market. He might understand the market well, but he does not know himself.

He over-estimates his trading skills and is confident that he can trade in any market condition.

The common work ethic

Our innate work ethic dictates that we must work for income. That is perfectly correct.

What is wrong is the meaning of “work” for traders. Traders tend to think that work means taking trades. That is wrong, and that is what leads to overtrading.

We are working when we are waiting for the best trade.

We are working when we are following our trading rules and executing the trades.

We are working even when we are not taking trades. And if we do our work correctly, we will get paid.

Fixing Overtrading - The One Bullet Action Plan

The Supreme Rule to Counter Overtrading

The One Bullet Action Plan has just one simple rule.

Take only one trade a day.

No exception. No rationalization.

Take one trade. If it’s a winner, shut down your trading terminal. If it’s a loser, shut down your trading terminal.

After shutting down your computer, go do something you enjoy. Play with your kids. Read a book. Do something that takes your mind off trading.

Why does it work against overtrading?

As we discussed above, the causes of overtrading are psychological and diverse. They mostly involve our minds playing games with us.

So our solution focuses on physical actions. (Shut down the computer and go play.) Instead of convincing your mind, let’s move away physically .

There is only one simple but absolute rule. The more rules there are, the more space for your mind to convince you to take another trade. Having only one absolute rule denies your mind of rationalization.

Are you sure taking one trade a day is a good idea?

Your mind is already trying to rationalize away this supreme rule. So let’s get it out of our way.

Knowing that you have only one bullet will force you to take only the best trades. You will be more alert and more selective in your trades. More likely than not, your trading performance will improve.

Taking one good trade a day is enough for your trading edge (if any) to materialize. Assuming you do have a trading edge, how much you can earn depends on the amount of your risk capital.

There is also the problem of undertrading which means that we are not maximizing the full potential of your trading strategy.

Don’t worry about that. Far more traders ruin their account because of overtrading compared to undertrading. In fact, no trader has ever lost their trading account by not taking a single trade.

Conclusion - You must stop overtrading

You must stop overtrading because it is a huge obstacle to your trading success.

You must stop overtrading because only you can do it. Although the One Bullet Action Plan works against overtrading, you have to commit to it.

Don’t be like Hubris. My other friend, Sophrosyne, is a better trader.

Image credit: gigijin [CC BY-SA 2.0] via Flickr (cropped from original)