Usually we try to avoid overtrading as much as possible as it is considered generally bad. But is it as bad as you read?
Here are the reasons why I believe that if managed properly, overtading could be good for you. Before you hit the buy button on your Lambo, please read further.
You get more data thus experience more quickly
In trading experience is everything and it will be the most repeated word in this post. Mainly because the experience includes all the aspects of trading. The edge, the discipline, the setups, the trade book, the risk management, it means nothing without the actual experience.
If you are a new trader, taking just 2 or 3 trades a day is generally a good practice for the habit itself, but is it efficient for your education and experience? It takes hundreds of trades to be confident, so limiting yourself like this can extend your learning time significantly. It is also very hard to spot any changes in the strategy if it takes you 30 days just to find out that something is not working anymore, then adapting the strategy and wait another 30 days to collect enough data to confirm it. So is your trading limit strategy helping you to achieve your goals effectively?
You get a chance to study your behavior
If you never did it, you would not know if you need to avoid it, or where the sweet spot for you is. If you never overtrade you never experience the feeling of ending the day red from being green. Do you know a trader that does not have this experience?
Always look at your stats and try to be around your sweet spot. How would you do if you traded less? If your sweet spot is at 5 trades, it is ok to have 7 or 10. Some days you feel you are in control even after 20 trades and some days you can lose it after the 1st loss that looked to be so promising trade, and you were attached to it emotionally so much that you just turned into Hulk.
The awareness of your state of mind is crucial. The awareness is to be learned too. If you are not used to have emotional awareness as I used not to have, practicing this skill is possible only if you expose yourself to those situations. The desired outcome is to be aware and to choose to stop. You will never get to have this skill without practice if you happen not to have it already.
You get a clear confirmation if overtrading is bad for your account
Overall it is good for your stats collection and experience, but you need to stay alive long enough, and you cannot fall to the pit when you trade just to be trading. Your actions should be always planned, following the predefined rules and not to be too emotional. You need to manage the risk and make sure you are in control.
At the end you will see it in your stats, and you would more likely truly believe it as it will be your own trading, not a guy recommending you what you should be (not) doing. That hard truth telling data has potential for your next session to chose rather to stop before you blow it. The chances that you are going to be having better results when overtrading exist, but are very low (from my experience). If you have the best days in terms of money when you overtrade, you better check your risk on those trades.
Even the best do it
If it happens, it is nothing disastrous when done with proper risk management. It might cost you a bit, but the overtrading itself is not that dangerous. It is the lack of integrity when you trade more and more and your rules are gone. Knowing that you can still manage it well can help you get on track. I have experienced days when I overtraded and traded terribly, then realized it and ended the day well. These days are gold because when that happens it wakes up the better yourself in you.
If you overtrade, overtrade safely!
In fact, I am not trying you to encourage to overtrade, but if you do, do it for good reasons.
Are you overtrading for the good reasons, or are you trying to fix things quickly?
Are you overtrading because of false beliefs like
I planned to be green today
if I have good stats the more I trade, the more I make
if trading is random, I must take some wins today
I need to catch at least one winner, so I can feel useful and not useless?
Then you re-evaluate your behaviour and try to do it when you are in control only. For me a sign of being out of control was taking trades with high risk, tight stops or even trades that I did not care about the outcome at all.
So how to overtrade safely?
Technically
With tools like Tradersync replay mode or DAS Trader Pro replay mode (just $15 extra) You get the chance to test the technical executions of your trades, test your hotkeys and use the speedup of the time to get more trades to collect your stats. You can take 20 trades in one hour and collect valuable data more quickly.
Mentally
Do a form of check up on your self. Are you too emotional? Are you aware of things that drive you to overtrade? If you trade with someone else, that can help a lot. A good trading buddy can put you back on track when they see or hear you doing too much trading or other crazy stuff.
Please, leave a comment if you overtrade and state your reasons to do so.