Overtrading and chasing losses
What you learn in 3 minutesOvertrading means taking more trades than your plan allows. Chasing losses means making a losing trade bigger to win the money back. Both turn one bad trade into a bad week. This lesson shows the cost in shillings, using EUR/USD around 1.0850.
Thirty trades and the cost in shillings
| Step | Amount | Note |
|---|---|---|
| Planned trades for the day | 3 | The number written in the plan before the session starts. |
| Trades actually taken | 30 | The count after the plan was ignored. |
| Cost per trade, one standard lot | KSh 1,085 | One pip on one standard lot is 10 units of the quote currency. At 1.0850, 10 US dollars converts to about KSh 1,085 at the current rate. |
| Total cost of thirty trades | KSh 32,550 | 30 trades multiplied by KSh 1,085 per trade. |
| Total cost of three planned trades | KSh 3,255 | 3 trades multiplied by KSh 1,085 per trade. |
| Extra cost from overtrading | KSh 29,295 | KSh 32,550 minus KSh 3,255. |
The broker may round the exchange rate, charge a spread that varies during the day, and add commission or swap on top. The pip value can differ slightly between brokers.
The mistake people make here
The common mistake is to take a losing trade and increase the size to win the money back quickly. This is chasing losses. It turns a small loss into a large one because the market does not know your position. Instead, stop for the day when you reach the number of trades in your plan. If you feel the urge to trade more, write down the reason and wait until the next session.Check yourself
You plan five trades on EUR/USD at 1.0850, one standard lot each. What is the planned cost in KSh if one pip costs KSh 1,085?
5 multiplied by KSh 1,085 equals KSh 5,425.
You take twenty trades instead of five. What is the extra cost?
Twenty trades cost 20 multiplied by KSh 1,085 equals KSh 21,700. The extra cost is KSh 21,700 minus KSh 5,425 equals KSh 16,275.