Overtrading is buying and selling far more often than your strategy actually requires — trading out of boredom, excitement, or a need to "do something" rather than because a plan calls for it. In a large study of individual accounts, Barber and Odean found the most active traders underperformed the market once trading costs were counted; their 2000 paper was titled "Trading Is Hazardous to Your Wealth."
Every trade leaks money in ways that are easy to ignore on any single ticket but brutal in aggregate: the bid-ask spread you cross on the way in and out, commissions where they apply, and — in taxable accounts — short-term gains taxed at higher rates. Frequent trading also multiplies the chances to act on recency and confirmation impulses, so the timing of the extra trades is often poor too.
Trade less, and only on a plan. Require a written reason and a concrete entry/exit level before each trade. For most long-term investors a buy-and-hold core with periodic dollar-cost averaging beats active churn after costs. Being alert to the disposition effect — the urge to keep tinkering with winners and losers — helps keep activity down.
It is buying and selling far more often than your strategy actually requires — trading on boredom or impulse rather than a plan.
Each trade leaks the bid-ask spread, any commissions, and (in taxable accounts) higher short-term tax; Barber and Odean (2000) found the most active individual traders underperformed after costs.
Require a written reason and a concrete entry/exit level before each trade, and for a long-term core prefer buy-and-hold with periodic dollar-cost averaging over active churn.
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Educational research only — not investment advice.