What it means
Overtrading is taking trades beyond what your system actually generates as valid setups. Two main forms: (1) FOMO overtrading — taking marginal setups because price is moving and you don't want to miss it; (2) Action-bias overtrading — making trades because being in the market 'feels productive,' even if the system isn't producing signals. Both erode edge: marginal setups have lower expectancy, and increased trade count multiplies transaction costs disproportionately.
Why it matters
Most retail traders take 5-10x more trades than their system actually produces. Each marginal trade has expectancy near zero (or negative); the accumulation is significant. A system with +0.5R expectancy and 50 trades/year (the actual signals) produces +25R; the same trader taking 200 trades/year (overtrading) at +0.1R average produces +20R but with much higher transaction costs, eating the surplus.
How to use it
Count valid setups your system generates per month. Track actual trades taken. If actual > 1.5× valid setups, you're overtrading. Filter rule: every trade should match a specific, written rule from your strategy. If you can't point to which rule is satisfied, it's a discretionary trade — and likely overtrade.
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