"Overtrading" - one of many fallacies based on FURU logic

[rexlord]

Among all of the cliche trading FURU (Faux Guru) jargon, "overtrading" has to be one of the worst!

It is an absolute joke to anyone who passed 5th grade math.

Why would you not want to "overtrade"?

Suppose your stats show that over 50 trades - net wins were $10,000 and net losses were $5,000. So why in the world would you want to trade less???
You would trade MORE, not less. Look for more markets to trade, look for foreign markets, look for anything it takes to generate MORE of those type of trades.

Of course, the FURU argument is: you only look for that one "best setup" - one trade per day/week and trade SIZE on the best plays.
But based on this logic, why not only do one "best of the best" setup per year and just bet everything you own on it?
Well, nobody is going to do that because your win % and profitability has absolutely nothing to do with the frequency you trade.

 

[dbphoenix]

If one is taking all those trades but only those trades that meet the requirements of his trading plan, he's not overtrading.

If he has no trading plan, even one trade is overtrading.

 

[Mr. Charts]

"over" trading is what it says on the can
too many trades
usually emotional causes or pure ignorance

 

[tomorton]

As I said elsewhere here just today, if you have a consistently profitable strategy, don't stop trading after a loser or string of losers, keep on trading. The law of averages will bring the money back.

 

[barjon]

As I said elsewhere here just today, if you have a consistently profitable strategy, don't stop trading after a loser or string of losers, keep on trading. The law of averages will bring the money back.

It's rare for me to disagree with you, Tomo, but there's many a down and out with their arses hanging out of their trousers still muttering to themselves "the law of averages will bring the money back"

 

[tomorton]

What I'm saying is if you have a good % win rate, there is only 1 way that win rate can be badly damaged - assuming it wasn't a good win rate on pure good luck - and that is if you reduce the number of trades so that statistical variation prevents your win rate exercising. And that won't be bad luck, it will be statistically unavoidable. But the larger your sample of trades, the more closely the actual win rate will track your standard win rate.

 

[dbphoenix]

Key phrase: "if you have a consistently profitable strategy".

 

[barjon]

Key phrase: "if you have a consistently profitable strategy".

Yes, and your consistently profitable strategy is consistent only up to now. It may continue to be equally consistent, but it may not.

 

[dbphoenix]

Yes, and your profitable strategy is consistent only up to now. It may continue to be equally consistent, but it may not.

Depends on whether or not the strategy is self-correcting and self-adapting.

 

[barjon]

Depends on whether or not the strategy is self-correcting and self-adapting.

True, but future consistency is still not necessarily assured at the same level.

 

[dbphoenix]

True, but future consistency is still not necessarily assured at the same level.

Over N trades it will be.

 

[barjon]

Over N trades it will be.

You say that with certainty, db, but I'm not so sure.

 

[new_trader]

Another meaning

"over" trading is what it says on the can
too many trades
usually emotional causes or pure ignorance

It can also mean trading a size that is out of proportion to the capital. This is what the phrase "Over-trading is financial suicide" refers to.

 

[Mr. Charts]

Consistency must include strategies which are adaptive to different market conditions. The success rate must also be high enough so that long runs of losers do not occur. Strategies that work and suddenly stop doing so become obvious quickly.

 

[Lúidín]

Among all of the cliche trading FURU (Faux Guru) jargon, "overtrading" has to be one of the worst!

It is an absolute joke to anyone who passed 5th grade math.

Why would you not want to "overtrade"?

Suppose your stats show that over 50 trades - net wins were $10,000 and net losses were $5,000. So why in the world would you want to trade less???
You would trade MORE, not less. Look for more markets to trade, look for foreign markets, look for anything it takes to generate MORE of those type of trades.

Of course, the FURU argument is: you only look for that one "best setup" - one trade per day/week and trade SIZE on the best plays.
But based on this logic, why not only do one "best of the best" setup per year and just bet everything you own on it?
Well, nobody is going to do that because your win % and profitability has absolutely nothing to do with the frequency you trade.

you would not want to overtrade..as..by doing so you run the risk of losing a very large % of your trading capital..

this in turn will result in untold emotional damage..which will then start a vicious circle of doubting trades..which will result in bad executions..which will affect your overall performance

in summary..it all depends on how stupid you are..and how many idiots you listen to talking about things that do not really matter when it comes to your personal financial decisions

you either know how to trade..or you do not..if you do not know..then the best way to learn is by risking a very small % of your available capital on each trade until you fully understand what you are doing right..and doing wrong

the reality is that it is actually very simple..but nearly everyone who tries messes it up due to mixing with the wrong people for way too long..and picking up some very bad habits along the way

LN

 

[hhiusa]

you would not want to overtrade..as..by doing so you run the risk of losing a very large % of your trading capital..

Overtrade? That is not possible when you do not trade.

HH :innocent:

 

[Lúidín]

Overtrade? That is not possible when you do not trade.

HH :innocent:

i know DB never shows any trades..but i did not say he does not trade..what gave you that idea..was it because he is trying to sell an ebook?

LN

 

[rexlord]

you would not want to overtrade..as..by doing so you run the risk of losing a very large % of your trading capital..

The frequency of your trading doesn't protect your capital

Consider the following scenarios :

1. Trader A made 5 trades in one month. 4 winning trades netted $5000 and 1 losing trade set them back -$7000. Trader A will potentially slowly bleed their account to $0 even though they do not overtrade. Trader A trades mean reversion and picks up pennies in front of a steamroller.

2. Trader B made 50 trades in one month. 20 winning trades netted $5000 and 30 losing trades netted -$7000. Trader B is a quant who trades a channel breakout system with a confirmed edge. He did not overtrade. The reason it was a losing month is because of a long losing streak. The trader did not overtrade and the losing streak was simply bad luck. Trader B's equity curve will eventually start to slowly creep up after they've generated enough trades. There is no reason for trader B to trade less.

 

[Lúidín]

The frequency of your trading doesn't protect your capital

Consider the following scenarios :

1. Trader A made 5 trades in one month. 4 winning trades netted $5000 and 1 losing trade set them back -$7000. Trader A will potentially slowly bleed their account to $0 even though they do not overtrade. Trader A trades mean reversion and picks up pennies in front of a steamroller.

2. Trader B made 50 trades in one month. 20 winning trades netted $5000 and 30 losing trades netted -$7000. Trader B is a quant who trades a channel breakout system with a confirmed edge. He did not overtrade. The reason it was a losing month is because of a long losing streak. The trader did not overtrade and the losing streak was simply bad luck. Trader B's equity curve will eventually start to slowly creep up after they've generated enough trades. There is no reason for trader B to trade less.

overtrading is when you have too many positions on at the same time..and the max % risked is more than 5% of your total capital

if you trade with higher risk..you can have higher reward..but your chance of blowing out should a big move happen is very high

it happened a lot of traders in london recently with the brexit results..margin calls all over the place as they all thought they were going to make a killing..fecking idiots the lot of them

LN

 

[Solas0077]

Key phrase: "if you have a consistently profitable strategy".

You will never know that unfortunately, or when you know it will be too late.