Are You Over-Trying? I Mean, Overtrading?

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by Gavin in Blog
June 11, 2024 1 comment
over trying in trading

Have you ever had insomnia at some point in your life?

If you have not, count yourself blessed.

For the rest of us, we all have experienced lying in bed, trying really hard to fall asleep.

The harder we try, the less likely we are to fall asleep.

The longer we stay awake, the more anxious we get, the harder we try, and the cycle continues – until you see it is time to get up to work after another sleepless night.

We can not make ourselves fall asleep.

The harder we try to sleep, the less likely we are to fall asleep.

We can not make the market give us money.

If we try too hard, we will end up losing money instead.

Then we get more anxious and try harder to make money back, but we end up losing more money, and the cycle continues.

Sleep will naturally come when it comes.

Money from the market will come when it comes.

Sure, we can prepare and give ourselves the best opportunity for the arrival of sleep – such as no caffeine, a dark, cool room, meditation, etc.

Just like we can prepare for trading to give ourselves the best opportunity for the arrival of money, such as caffeine, a warm, bright room, meditation, etc., don’t forget pre-market prep, study of the playbook, proper practice,  review, etc.

But in both cases, trying too hard does not work.


What Is Overtrading?

If you search “overtrading,” you will predominantly find articles and videos on the negative side.

In fact, one video goes as far as to say:

“Overtrading is one of the biggest P&L killers and could be destroying your trading career.”

Overtrading is making trades you are not supposed to make because they do not meet the setup criteria of your playbook.

They are not necessarily trades that have gone bad.

If the trade meets the criteria and you have followed the playbook rules, it is valid even if it loses money.

This is not an overtrade.

Some examples will help define what is overtrading.

Fear Of Missing Out

Suppose a trader’s playbook trade is to buy a stock when the price crosses the 21 exponential moving average and is above the 50-day moving average with ADX greater than 20.

Then, the trader sees in the trading forums a popular stock, which many traders have spectacular returns on.

The trader fears that he will miss out.

So he buys the stock, only to find that he bought at the top when the run had already exhausted itself.

The stock pulls back as soon as he buys, resulting in a losing trade.

Upon review of the trade, he realized that the stock price did not meet his entry criteria at the time of purchase.

First, he failed to check his entry criteria before entering the trade.

If he did check, he saw that it did not meet the criteria and entered the trade anyway.

This would be a trading error. This trade was an overtrade.

This scenario is so common traders simply refer to it as FOMO – the fear of missing out.

If one introspects upon this action, one might realize that this emotion is not actually fear.

The emotion is greed.

If the trader had no greed for money, the trader would not have cared to enter the trade even if all of his trading friends were making huge money.

The trader would not even have been envious.


Speaking of greed.

Suppose a trader’s playbook says to take profit at 2X the stop loss.

Stock meets entry criteria, and the trader buys at $421.90 and sets a stop loss below support at $416.90.

With a 5-point wide stop, the playbook says to take profit at $431.90.

The trader sees that the stock exceeded the profit target of $431.90 but does not exit because she wants more profit and is waiting for the stock to go even higher for exiting – only to find that the next day, the stock dropped to $430.75.

She waits for it to get back to the profit target.

Instead, it dropped further the next day, the next day, and the next day – until it got down to $416.89 and triggered the stop loss.

This resembles someone climbing a ladder to pick some oranges off a tree.

A sticker on the ladder says, “Do not step on the top step.”

The person steps on that last step, reaching for the barely out-of-reach orange, and topples and falls.

Fortunately, the tree wasn’t tall, and no one got hurt.

Revenge Trades

These trades need no explanation.

The trader loses a couple of trades and is very angry.

He tries so hard to make the money back that he throws his playbook out the window and fires off trades.

He says, “Why do I need this stupid playbook?

If I wait for the entry criteria, I will never make my money back.”

Overtrading Options

Overtrading is not just limited to equities traders; it also applies to option traders.

Suppose a trader’s options playbook specifies to take profit at 15% in a calendar time-spread trade.

The trade hits the 15% profit target, but the trader sees that the price is still within the expiration graph and is greedy for more profit.

So, she does not exit the trade as specified.

The next day, the market made a big move, giving away all its profits.

Overstaying The Welcome

Suppose a trader’s iron condor playbook says to exit no closer than 21 days till expiration (DTE).

Seeing that his P&L is still negative, the trader decides to hold the trade past the 21 DTE to get more theta to at least break even.

But as gamma increases the closer the trade gets to expiration, even a modest move in price causes the P&L to drop even further until the trader finds that he is within seven days of expiration and has lost more money than if he had exited at 21 days till expiration.


Perhaps a delta-neutral trader’s playbook says to adjust the trade when the position delta exceeds plus or minus two delta for each butterfly lot.

But he starts adjusting the trade even when the delta is only at plus or minus 1.


He wanted to keep the delta closer to zero to avoid the pain of negative P&L when the price moves in the opposite direction of the delta.

Over-adjusting is a form of overtrading.

The root cause of this is fear of a large market move.

Another possible cause is itchy hands needing something to do, something to adjust, something to trade.

Boredom Trades

Maybe the playbook for an iron condor trader says to enter the iron condor only when VIX is above 15.

She has been sitting on her hands for months, waiting for the VIX to go above 15. She says, “I can not wait any longer. I’m just going to enter”.

Maybe it will work; maybe it will not.

Either way, this is an overtrade.

Final Thoughts

Overtrading is trading too often, staying in the trade too long, and adjusting the trade too much.

What is meant by “too much” is defined by a trader’s playbook.

This is not to say that a trader can not modify their playbooks.

They can.

They just can not haphazardly decide to modify the playbook’s rules in the middle of the trade.

If they had logged and reviewed the past trades and decided that a 15% profit target on a calendar is too low or decided that 21 DTE exit or the delta limits need to be changed, they could re-write the rules of their playbook for trades going forward.

If my diet is to limit myself to one slice of pie per day, then I will not eat two slices.

However, if on one rare day of extenuating circumstances, I eat two slices, well, then, okay.

I forgive myself.

We are human, after all.

We hope you enjoyed this article on over trying in trading.

If you have any questions, please send an email or leave a comment below.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.



1 Comment
  1. Tarhib IT Limited says:

    Great insights! Your perspective on the dangers of over-trying in trading is really enlightening. Thanks for sharing these valuable tips!

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Options Trading 101 - The Ultimate Beginners Guide To Options

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