The reality of "over-trading"

chrisjs87 · Jun 4, 2015

I hear many posters on this site warning others about the pitfalls of "overtrading", or lamenting their own struggles with "overtrading". I want to take this opportunity to remind you that if your strategy has an edge, you should trade it as frequently as possible. That being said, if your strategy does not have an edge, trading it infrequently will not compensate for the uselessness of your strategy. No amount of bankroll management will overcome this.

If your strategy produces increased losses with increased trading, the problem is NOT that you are overtrading. The problem is that your strategy is flawed, and you need to stop using it.

Playing fewer hands of baccarat or blackjack will not reduce the house edge. You will just reach your negative expectation more slowly. The same applies to trading.

loyek590 · Jun 4, 2015

chrisjs87 said:
I hear many posters on this site warning others about the pitfalls of "overtrading", or lamenting their own struggles with "overtrading". I want to take this opportunity to remind you that if your strategy has an edge, you should trade it as frequently as possible. That being said, if your strategy does not have an edge, trading it infrequently will not compensate for the uselessness of your strategy. No amount of bankroll management will overcome this.

If your strategy produces increased losses with increased trading, the problem is NOT that you are overtrading. The problem is that your strategy is flawed, and you need to stop using it.

Playing fewer hands of baccarat or blackjack will not reduce the house edge. You will just reach your negative expectation more slowly. The same applies to trading.

just this morning I discovered a small tweak I could make in my strategy which could eliminate about 3 trades per day. Doesn't sound like much, but over time it adds up.

Just like any business, when you can't find anything to do to make you more profitable, you start looking for ways to save on costs.

chrisjs87 · Jun 4, 2015

loyek590 said:
just this morning I discovered a small tweak I could make in my strategy which could eliminate about 3 trades per day. Doesn't sound like much, but over time it adds up.

Just like any business, when you can't find anything to do to make you more profitable, you start looking for ways to save on costs.

Eliminating redundancy in an already effective strategy is one thing. I'm speaking to the people who think opening up their sand store in the Nevada desert only 3 days per week instead of 5 will somehow save their business.

loyek590 · Jun 4, 2015

chrisjs87 said:
Eliminating redundancy in an already effective strategy is one thing. I'm speaking to the people who think opening up their sand store in the Nevada desert only 3 days per week instead of 5 will somehow save their business.

been there done that. If you are looking for confirmation that you should stick with your strategy even during drawdown, yes. You will be thinking more clearly when you get back close to even, and then you can make a rational decision if you want to be more selective or decrease size.

chrisjs87 · Jun 4, 2015

No I was not baiting for "confirmation". I don't know how you gathered that from anything that I said.

loyek590 · Jun 4, 2015

chrisjs87 said:
No I was not baiting for "confirmation". I don't know how you gathered that from anything that I said.

I think the debate is, "Should you cut back during drawdown?"

loyek590 · Jun 4, 2015

loyek590 said:
I think the debate is, "Should you cut back during drawdown?"

nobody is worried about commissions or the spread or even taxes when it is going good.

IAS_LLC · Jun 4, 2015

chrisjs87 said:
I hear many posters on this site warning others about the pitfalls of "overtrading", or lamenting their own struggles with "overtrading". I want to take this opportunity to remind you that if your strategy has an edge, you should trade it as frequently as possible. That being said, if your strategy does not have an edge, trading it infrequently will not compensate for the uselessness of your strategy. No amount of bankroll management will overcome this.

If your strategy produces increased losses with increased trading, the problem is NOT that you are overtrading. The problem is that your strategy is flawed, and you need to stop using it.

Playing fewer hands of baccarat or blackjack will not reduce the house edge. You will just reach your negative expectation more slowly. The same applies to trading.

I wish I could "like" this again. I think the problem most people have when they trade frequently if loss of discipline, even if they have an "edge".

i am nobody · Jun 4, 2015

I don't agree that it is as simple as you described. The frequency of trading should be part of your strategy, if not you risk to overtrade, or undertrade, which is possible too.

I refer to a posting that I made in another thread: http://www.elitetrader.com/et/index.php?threads/average-of-trades-per-day.291830/page-3#post-4129269

tiddlywinks · Jun 4, 2015

chrisjs87 said:
Playing fewer hands of baccarat or blackjack will not reduce the house edge. You will just reach your negative expectation more slowly. The same applies to trading.

+1

Not to be forgotten are those who arbitrarily limit the number of daily trades, based on nothing! I can't help but chuckle reading the posts married to the idea of making one or two trades a day and be done. As if they know what and when the market will be offering, let alone executing flawlessly to extract.