Jesse Livermore and overtrading: the cause of so many losses on Wall Street
“It is the desire to act constantly, without a valid reason, that causes so many losses on Wall Street — even among professionals.”
— Jesse Livermore
Overtrading means trading more than your strategy justifies — not exceeding some given number of orders. A scalper following their plan is not overtrading; a swing trader taking one unplanned position is. The cure comes down to three rules: a maximum number of trades set in advance, a mandatory pause after every loss, and a written trading plan.
What is overtrading?
“Yes, but I scalp! Of course I place a lot of orders in a short space of time!”
No.
Whether you are a scalper, a day trader or a swing trader, you can overtrade. Overtrading is not exceeding an arbitrary number of orders per day. It is:
Trading more than your strategy justifies.
You are overtrading if you place orders without a valid reason, without a rational analysis of the situation, without your trading plan calling for it.
The emotions that lead to overtrading
- Stress
- Impatience
- Overreacting to market moves
- Anticipating too early
- Frustration after a loss
The consequences
Brokerage fees explode. Your broker loves the overtrader — and encourages them.
Trades taken too early. You enter before the signal is confirmed.
Gains cut prematurely. You exit with no valid reason, out of fear or impatience.
The end result: you become a losing trader. Not because your strategy is bad, but because you are not following it.
The cures
- Set a maximum number of trades per day, week or month. The constraint forces you to be selective — and selectivity is what separates a good trade from a bad one.
- After a loss, get some air. Walk, think about something else. You are under no obligation to win it back within the minute or the day.
- Follow your trading plan to the letter. If you don’t have one written down yet, that’s the first thing to do.
- Work on your patience. Meditation, even a few minutes a day, helps build the muscle of waiting — the same one the profitable trader uses.
The best way to avoid overtrading? Follow a strategy with clear, predefined signals telling you exactly when to enter and when to stay out. That is precisely what The Rise™ offers — 30 years of backtests, 16.48%/year, and signals that leave no room for interpretation.
Overtrading: causes, effects and solutions
| Trigger emotion | Effect on the account | Cure |
|---|---|---|
| Impatience, the urge to act | Entries before the signal is confirmed | Maximum number of trades per day or week |
| Frustration after a loss | Revenge trades | Mandatory pause, step outside |
| Stress, fear of missing out | Gains cut prematurely | Written trading plan, followed to the letter |
| Overreaction to the market | Brokerage fees explode | Predefined signals, no interpretation |