Overtrading Options
Learn to recognize overtrading patterns, understand the true costs, and develop the discipline to trade less but better.
Why This Matters
Overtrading is trading too frequently, with too much size, or without an edge - driven by emotion rather than strategy. It's one of the fastest ways to destroy a trading account. The costs of overtrading include commissions, bid-ask spreads, emotional fatigue, and making decisions from desperation rather than opportunity.
Revenge Trading After Losses
criticalTaking immediate new trades to 'make back' losses. Decisions made from emotion, not analysis. Often leads to bigger losses.
Implement a 'cooling off' rule: no new trades for 24 hours after a significant loss. Journal the loss first. Only trade when calm.
Lose $500 on a trade. Immediately open a bigger position to 'make it back.' Lose another $800. Now down $1,300 from emotional trading.
Trading Without an Edge
criticalOpening positions just to 'be in the market' without a clear thesis or edge. Random trades have negative expected value due to commissions/spreads.
Define your edge before every trade: Why does this trade have positive expected value? If you can't answer clearly, don't trade.
Open 5 random spreads 'to stay active.' No clear thesis for any. 3 lose, 2 win small. Net loss after commissions. Zero value added.
Ignoring Transaction Costs
highFrequent trading accumulates commissions and bid-ask spread costs. A $0.65 contract commission becomes $2.60 round-trip for a spread.
Calculate total transaction costs per trade including commissions and estimated spread cost. Target trades with profit potential > 3x costs.
Trade 4-leg iron condor daily. $5.20/day in commissions alone. $104/month just in friction. Plus spread slippage. $150+/month in costs.
FOMO Trading (Fear of Missing Out)
highChasing moves after they've happened. Buying calls after a stock has already rallied 10%. Always late to the party.
If you missed the move, you missed it. Wait for the next setup. The market provides new opportunities daily. FOMO trades have poor risk/reward.
TSLA rallies 15%. Buy calls at the top because 'it's going higher.' Stock consolidates for 3 weeks. Theta decay kills the position.
Position Size Creep
mediumGradually increasing position sizes after wins, or averaging into losers. Risk per trade becomes outsized relative to account.
Set hard position size rules: max 2% risk per trade, max 5% per underlying. Review sizing weekly. Reduce size after losing streaks.
Start with $200 positions. Win streak leads to $500, then $1,000 per trade. One bad trade wipes out 3 months of gains.
✅ Prevention Checklist
The Overtrading Audit
Answer honestly:
- Do you trade every day 'to stay active'?
- Have you opened a position after saying 'I shouldn't do this'?
- Do you know your transaction costs as % of profits?
- Can you explain your edge for each of your last 5 trades?
- Do you feel compelled to check positions every hour?
If you answered 'yes' to 2+ questions, consider reducing your trading frequency.
Frequently Asked Questions
How do I know if I'm overtrading?
Signs of overtrading: 1) Trading daily regardless of setups, 2) Taking trades to 'stay active,' 3) Revenge trading after losses, 4) Transaction costs exceeding 10% of profits, 5) Unable to explain your edge on most trades, 6) Feeling anxious when not in a position. If any apply, reduce frequency.
How many options trades should I make per month?
Quality matters more than quantity. Many successful traders make 5-15 trades per month - only when they have a clear edge. Start with a maximum of 10 trades per month. Track your results. If win rate and profit factor are good, you can consider adding more. If not, trade less until you improve.
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