Over trading is when a trader takes a trade based on fear, greed, desperation, or ego instead of a valid entry signal. Over trading is due mostly to wanting to be profitable so bad that impulses are driving decisions instead of a trading plan. If a trader has an edge over the markets then they want to take the trades presented to them, the more signals the better. If a trader takes trades that are not based on robust entry parameters the more trades they take the quicker their undoing and demise.
- For smaller accounts over trading can rack up large commission costs that can eat into profitability.
- The bid/ask spread is an expense that pays the market makers at your expense. The more you trade the more you pay.
- The more you trade the more you can be front run and gamed by High Frequency Traders. You can beat High Frequency Traders with Low Frequency Trading.
- Trading too much gets you into bad entries when you should have been waiting for good entries. Entries have to be based on signals and risk/reward ratios not the emotional chasing of gains.
- Over trading is bad trading. Generally over trading is the external results of bad internal self controls. It is the epitome of not having a trading plan, lacking discipline, and not following a trading plan. Over trading will cause you to lose faith in yourself as a trader with the discipline to follow a plan. Over trading can lead to mental ruin only take the right trades that meet your own guidelines and trading plan based on homework and research.