Lesson 3 of 7 · 7 min
Overtrading
Why more trades usually means less money, how to tell boredom trades from real ones, and what they cost over a year.
By the end you'll be able to
- Identify the three usual causes of overtrading
- Calculate what extra, low-quality trades cost in spread alone
- Set a frequency rule that fits your method
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A method that produces three good setups a week does not produce fifteen. The other twelve come from somewhere else, and they are paid for.
Where the extra trades come from
Overtrading is taking more trades than your method generates. The usual sources:
- Boredom. The screen is open, nothing is happening, and doing something feels better than doing nothing.
- Lowering the bar. After a quiet week, setups that would normally be rejected start to look acceptable.
- Feeling busy. Equating activity with progress, as in most jobs. Trading is one of the few where the best day is often the one with no trades.
Each extra trade carries the full cost of a real one and almost none of the edge.
What it costs
Spread = pips × $10 × lots. Commission and swap are quoted per lot. A trade must earn more than the total before it makes anything.
Every trade pays the spread, whether it had a setup or not. Low-quality trades also tend to be taken at worse times of day, when spreads are wider, and closed in frustration rather than at a planned level.
Try it
Spread cost = spread in pips × pip value for your trade size. It is paid on every trade, whether it wins or loses.
Notice how the yearly figure scales with trade count. Now imagine the account has $2,000 in it.
A frequency rule
Count how many setups your written plan produced over the last month. That number, give or take, is your ceiling. If you are taking three times as many trades as your plan generates, two-thirds of your trading is something other than your plan. Put a number in the plan: “maximum N trades per day”.
Quick check
Question 1 of 3
Your plan produced four setups this week. You took eleven trades. The other seven were:
Question 2 of 3
Twenty extra mini-lot trades a week at a 1.5-pip spread cost roughly how much a year (48 weeks)?
Question 3 of 3
Which is the best protection against boredom trading?
Go deeper: Overtrading in Forex: Signs, Causes and How to Stop It