Trader Tip: Over-trading Over-trading is a question we should all ask ourselves. Many traders seem to think that by trading more frequently they are opening themselves up to more opportunity. What they don’t realize is that they are also opening themselves to more risk. Should not each trade stand on its own as a rational trade? Ahh, but the quick action gives such an adrenaline boost. Over-trading traders, tend to think quite highly of themselves. The quickest way to improve your trading is to stop trading so much! So are you over-trading?

First off, what is over-trading? Put simply, over-trading is the act of trading too frequently. The next question is, what is trading too frequently? This is a little more difficult to answer. The notion here is that, you are trading too frequently when the overall trade performance start to degrade due to the exposure of additional trades causing a higher win rate and a lower (or negative) PSR (profit stop ratio) in your trading stats. This could be due to the speed of trade causes the trader to not think through thoroughly the trade strategy (perhaps stretching the set up parameters and/or the Trigger), or the speed causes too much emotion in the trade causing irrational trades.

The other thing a trader should understand about over-trading, is the effect of the number of trades and spreads. If a trader makes 100 trades per month vs a trader making 20 trades a month, and the cost of a trade is 1.5 Pips per trade, what is the affect. The trader with 100 trades pays -150 pips for the month and the trader with 20 trades pays -30 pips. The question is then, does this extra cost really give extra profits. The over-trading trader is already down -150 pips for the month before they even start.

But I am a scalper, so this is not over-trading, right? Though Blue Point Trading does not ban this, we have had very few traders that have been successful doing this. Why? Most of these traders never have stops and have win rates of over 80%. Sounds good huh? It is a short term hold until right strategy. Inevitably there is that very small percentage of trades where it gets away from the trader, and with no stops, it kills the PSR. The net of this is challenging. This is not to even speak of the number of trades and spread issue. Winning with scalp trades, let’s say 3 pips, with spreads you need to win 4 pips to win 3 pips – your cost is 25%. This is opposed to a negligible cost of, if you were going for 100 pips, of 1%. Do the math.

So here are a few suggestions to help stop over-trading:

  • Set a limit of number of trades per day.
  • Don’t use less than 15 minute time series charts. Lower time series is just noise.
  • Scalpers tend to be losers.
  • Complete your Trade Journal, this mere task will slow you down.

Another question we get often is, what is the number of trades per month in the Blue Point Trading Trader Trainee Programme who are successful? The answer here is about 15 to 25 trades per month. This is not to say that traders that have more or less have never been successful. So I hope this Blog post will help you understand whether you are over-trading, with the goal to reduce this and improve your overall trading performance. Click here, or watch below a video presentation of this Trader Tip.

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Trader Tip: Over-trading

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