Overtrading and chasing losses
Compare a plan followed with a plan abandoned
Two people open the same account with the same balance. Each plans five trades on EUR/USD at 1.0850, one standard lot each. One follows the plan and stops. The other keeps going. The first pays KSh 5,425 in pip costs. The second pays KSh 21,700. The gap is KSh 16,275, and no market move caused it.
The gap grows because every extra trade adds cost before the market has done anything. A trade at 1.0850 that moves one pip against you costs KSh 1,085. That cost is the same whether you planned the trade or took it on impulse. The plan does not change the market. It changes how many times you pay to enter it.
A plan that allows five trades is not a target. It is a limit. Reaching it means the session is over, not that you need a sixth trade to finish well. The person who stops at five keeps KSh 16,275 that the other person no longer has. That money is still available for the next planned session.
Recognise the moment size rises to recover a loss
Chasing losses starts with a single losing trade. Say you lose KSh 5,425 on one lot. The urge is to take the next trade with two lots so one good move returns the money. At 1.0850, two lots cost KSh 2,170 per pip. A further ten pips against you adds KSh 21,700 to the loss. The first loss was small. The second is not.
The market does not know your position or your need to recover. Price moves for its own reasons. Raising size does not raise the chance of a win. It raises the amount at risk on the same uncertain outcome. A plan that says one lot per trade is a rule about size, not a suggestion for when you feel behind.
If you notice the urge to increase size after a loss, stop for the day. Write down the reason you want to trade again. The reason is usually the loss itself, not a new signal. Waiting until the next session removes the urge and keeps the account at the size the plan allows.
Measure the cost before the market moves
Before you take a trade, work out what it costs if nothing happens. At 1.0850, one standard lot costs KSh 1,085 per pip. A ten-pip stop costs KSh 10,850 if it is hit. Five planned trades with that stop cost KSh 54,250 at most. Twenty trades with the same stop cost KSh 217,000. The second number is not a market event. It is a choice.
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. Treat KSh 1,085 as an example, not a fixed rate. Recompute it with your own broker's numbers before you use it.
Write the maximum cost of your session on paper before you start. If the number is more than you are willing to lose, reduce the number of trades or the size. Do not reduce it after a loss. The time to decide the cost is before the first trade, when the market has not yet affected your judgement.
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.
Doing it once, step by step
Follow these steps once, in order, to set a session limit and keep it. Each step uses the numbers from the sections above.
- 01
Write the number of trades allowed
Choose a number before the session starts. Five is used in the examples above. Write it where you can see it. This number is the limit, not a target.
- 02
Calculate the cost of one trade
Multiply the pip value by the size you will use. At 1.0850 with one standard lot, one pip costs KSh 1,085. Check this figure with your broker, because it can vary.
- 03
Multiply by the number of trades
Five trades at KSh 1,085 per pip cost KSh 5,425 in pip value alone. Add spread, commission and swap if your broker charges them. The total is the planned cost of the session.
- 04
Set a stop for the day
Decide the maximum loss in shillings before you begin. If the session reaches that number, stop. The number is fixed before the first trade, not after a loss.
- 05
Record the reason for any extra trade
If you want to trade beyond the limit, write down why. If the reason is the last loss, do not take the trade. Wait until the next session.
- 06
Compare the planned cost with the actual cost
At the end of the session, add up what you paid. Compare it with the planned figure. If the actual cost is higher, find out which trade caused the difference. Use that answer to set the next session's limit.
The mistake most 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.
Questions that come up next
Why does a trade cost money even when the price has not moved?
Every trade is entered at one price and left at another. The difference between those two prices is the spread, and the broker keeps it. At 1.0850 on EUR/USD, one standard lot costs about KSh 1,085 for each pip of that spread. The cost appears the moment the trade opens, before the market has done anything. Taking more trades means paying that cost more times.
How do I know I have overtraded rather than just traded actively?
Your plan already contains a number of trades for the session. If you have taken more than that number, you have overtraded, whatever the results. The count is the test, not the feeling. A plan that allows five trades is a limit, not a target to beat. When the fifth trade closes, the session is finished.
Why is raising size after a loss so damaging?
The market does not know your position or what you need to recover. Price moves for its own reasons. Doubling the size doubles the amount at risk on the same uncertain outcome. It does not double the chance of a win. One further ten-pip move against a two-lot position adds KSh 21,700 to the loss.
Is it better to stop for the day or to take one more trade to recover?
Stopping for the day keeps the loss at the size the plan allowed. Taking one more trade to recover raises the size and the risk at the same time. The urge to recover comes from the loss, not from a new signal on the chart. Writing down the reason for the next trade usually shows that the reason is the loss itself.
Does the pip value stay the same all day?
No. The pip value in shillings depends on the exchange rate the broker uses, and that rate moves. The broker may round it, the spread varies during the day, and commission or swap may be added on top. The figure also differs slightly between brokers. Treat any pip value as an estimate, not a fixed number.
What should I write down when I want to trade after my plan is finished?
Write the reason in one sentence. If the sentence describes a loss you want back, the reason is the loss. If it describes a signal you had not seen before, check whether the plan allows another trade. Keep the note and read it at the next session. The pattern in those notes shows which urge is driving you.
The words used on this page
- Overtrading
- Taking more trades in a session than your written plan allows. The extra trades each carry a cost before the market moves. The count of trades is the measure, not the result.
- Chasing losses
- Making a losing trade bigger in the hope that one good move returns the money. It raises the amount at risk on the same uncertain outcome. The market does not know your position or your need to recover.
- Pip
- A small unit of price movement on a currency pair. On EUR/USD around 1.0850, one pip is a move in the fourth decimal place. The value of one pip in shillings depends on your lot size and the exchange rate.
- Standard lot
- A fixed trade size used in these examples. One standard lot on EUR/USD at 1.0850 costs about KSh 1,085 for each pip of movement. A plan that says one lot per trade is a rule about size.
- Spread
- The gap between the price at which you can buy and the price at which you can sell. The broker keeps this gap. It varies during the day and differs between brokers, so the cost of a trade is never exactly fixed.
- Session
- The period covered by one plan, such as one trading day. When the number of trades in the plan is reached, the session is over. The next session starts fresh with the same rules.
What to take away
- A plan sets a limit on trades, not a target to reach.
- Every extra trade adds cost before the market has moved.
- Raising size after a loss raises the risk, not the chance of a win.
- When the plan's trade count is reached, stop and write down the reason for any further urge.