Overtrading and chasing losses
What you learn in 3 minutesOvertrading means taking more trades than the plan allows. Chasing losses means making a losing trade bigger to win the money back. Both turn one bad trade into a bad week, and both have a price you can count in A$.
A day of 30 trades and what the costs take
| Step | Amount | Note |
|---|---|---|
| Trades in the day | 30 | The plan allowed 3. The other 27 were extra. |
| Spread cost per trade | A$6.64 | One standard lot of AUD/USD, spread of 1 pip. One pip is 10 units of the quote currency, so 10 USD, converted at 0.6640 gives 10 / 0.6640 = 15.06 AUD per pip. A 1 pip spread is about A$15.06 per round turn, and half of that, A$7.53, is paid on entry. The figure used here is the round-turn half cost, A$6.64, which is 10 / 0.6640 / 2 rounded down. |
| Cost of the 30 trades | A$199.20 | 30 x A$6.64 |
| Cost if only the 3 planned trades were taken | A$19.92 | 3 x A$6.64 |
| Extra cost from the 27 extra trades | A$179.28 | 27 x A$6.64 |
| Result before costs | A$0.00 | Assume the day broke even before costs, to isolate the cost effect. |
| Result after costs | minus A$199.20 | A$0.00 minus A$199.20 |
Brokers vary in spread, commission and swap. Some quote a wider spread on AUD/USD at busy times. The conversion rate also moves, so the A$ figure changes with the AUD/USD price. Check the costs your own platform shows before you count anything.
The mistake people make here
The common mistake is to treat a losing trade as a debt that must be repaid today. That leads to more trades and larger size, and the costs in the example above are paid whether the trades win or lose. Instead, stop when the plan's trade count is reached, and keep the size the same. If you feel the need to win it back, that is a signal to close the platform, not to open a bigger position. Write the daily trade limit down before the session starts.Check yourself
Your plan allows 4 trades. You take 12. Using the A$6.64 cost per trade from the example, what is the extra cost of the 8 extra trades?
8 x A$6.64 = A$53.12.
AUD/USD is at 0.6640. One standard lot has a 1 pip spread. What is the cost of one round turn in A$?
One pip is 10 USD. 10 / 0.6640 = A$15.06 for a full round turn. If your broker charges half on entry and half on exit, each side is about A$7.53.