The Weekly Cost of Overtrading in Plain Numbers

[Fairman]

The Weekly Cost of Overtrading in Plain Numbers

Scenario: two traders have the same strategy and the same account of 10,000 dollars. Trader A takes 5 trades a week. Trader B takes 20, adding marginal setups. Each trade risks 100 dollars, with a stop of 25 pips on EUR/USD at 0.40 lots, and the spread costs 1.2 pips per trade.

Work it out. Spread cost per trade: 1.2 pips at 0.40 lots is 4 dollars per pip times 1.2, which is 4.80 dollars. Trader A pays 24 dollars a week. Trader B pays 96 dollars.

Now the edge. Suppose the original 5 setups have an expectancy of plus 0.25R, or 25 dollars per trade before costs. A earns 125 dollars before costs, 101 after. Suppose the extra 15 marginal trades have an expectancy of minus 0.1R, or minus 10 dollars per trade before costs. They contribute minus 150 dollars before costs, and minus 222 after costs of 72.

Trader B's week: 125 minus 150, which is minus 25 before costs, and minus 121 after costs of 96.

The same strategy, the same account, and the difference is 222 dollars a week, simply from adding trades with no edge.

Over a year, that is more than 11,000 dollars, more than the whole account.

Takeaway: every marginal trade must clear its costs and add edge. If it does not, skipping it is the profitable decision.

Practical step: separate your A-setups from your marginal trades in the journal, and compare their expectancy.