Overtrading? How to Stop Overtrading?

India is one of the largest stock markets in the world, especially in the FNO (Futures & Options) segment. The retail participation has surged since the COVID lockdown days and the advent of the WFH/Hybrid era, coupled with app-based ‘easy trading’. However, since late 2024, this accessibility, combined with high leverage, has led to widespread overtrading among retail traders, most of whom may now be trading for a living.

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In 2025, with the India VIX plunging to historic lows around 9-10 levels due to various reasons, including consistent exits of FIIs and increasing SEBI regulations/prohibitions to discourage retail traders from going for high-leveraged FNO trading. All these caused unusually muted market volatility compared to 2024, and as a result, the overall trading ecosystem has become structurally challenging even for professional traders. A small intraday trading range often fails to cover even transaction costs. Thus, many traders increased their position size in multiples (say now trading in 6-10 lots vs earlier 2-4 lots) for a fixed brokerage model to be in profit at EOD. But this often results in more loss and mental agony, resulting in another impulsive trade. And the cycle goes on. Even if a trader has some winning trades, he may become overconfident and opt for more ‘hero’ trades, often going to ‘zero'!

So, what is overtrading in the Indian FNO/stock market?

Overtrading basically refers to executing rampant buy/sell or sell/buy transactions for a few points without ensuring a well-structured trading plan. This includes lack of entry/exit strategy, position sizing, money management and overall risk management. A trader should trade with a well-researched high-probability set-up rather than indiscriminate & impulsive high-frequency trading for a few points gain or loss (like scalping).

In India, most of the small retail traders indulge in ‘cheaper’ options buying, especially out-of-the-money (OTM) contracts— aiming ‘lottery prize’ where traders chase quick money to be rich instantly in a "hero or zero" mindset. Millions of young, inexperienced retail traders are now trading as a full/part-time job, often trading for a living-resulting in overtrading and more losses. This eventually causes psychological distress and wealth destruction, if unchecked.

Why are Indian retail amature traders overtrading?

This is being driven by psychological & financial factors (including trading for living compulsion) and further exacerbated by India's highly regulated market structure and the current low-volatility regime:

• Emotional Impulses: Fear of Missing Out (FOMO) on minor moves, greed for rapid gains, overconfidence after a winning trade or revenge trading after losses
• An urge to earn daily for a living, even in Low-Volatility range-bound Markets- quiet sessions prompt forced trades, particularly scalping likes without a proper plan or trading set-up.
• Overconfidence: Past wins result in more such trades, but a lack of rules often leads to emotional distress.
• Trading on borrowed funds bearing high interest, like 5-10% per month-leads to an urge to earn daily to serve the debt and results in overtrading
• Casino-Like Mentality- Treating the market as gambling, buying cheap OTM options for lottery-like payouts, ignoring time decay (theta) that favours sellers (often institutions and HNIs).
• Constant Monitoring and Impatience: Tick-by-tick screen watching without patience, unsuitable for the current range-bound conditions.
• App-based mobile trading: Easy access via app-based discount brokers often fuels frequent trading-even on a crowded train/bus- while lower/cheaper margin requirements push many towards OTM options buying.
• Institutions with superior resources and trading systems can exploit low volatility, but retail traders often bear the brunt.

The Dangers of Overtrading in the Indian Market

• The low-volatility environment of 2025, with Nifty 50 in an extremely narrow range for most of the days, making traders' lives difficult for most of the days.
• Huge transaction cost often leads to a net loss even after a minor gross profit
• Frequent trades can consume 50-100% of small gains, turning gross profits into net losses.
• Unviability of Scalping and Intraday Strategies- Even professionals struggle with scalping in narrow ranges; small moves fail to offset costs, leading to consistent net loss and wealth destruction.
• Capital Erosion and Leverage Risks- Over-leveraged positions in FNO trigger margin calls; poor setups compound losses.
• Psychological Burnout- Consistent stress from mounting costs and losses affects mental health, work, and family life.
• SEBI's participant studies show 90-95% of retail FNO traders incur huge losses, largely from undisciplined trading activities.

Potential Strategies to Curb Overtrading

Avoiding overtrading requires discipline tailored to India's cost-heavy and low-volatility setup:

Develop a Robust Trading Plan Tailored to Current Indian Conditions

• Plan a clear trading strategy; 2-4 intra swing targeting 50-100 points each (as per market volatility); use proper technical & fundamental signals for entries/exits (risks around 0.5-1.0% per trade with minimum 1-2% gains)-1:2 risk/reward ratio
• For scalping- pre-calculate costs in points (e.g., 20-40 points round-trip) and ensure targets exceed them.

Scale Position Sizing Conservatively

• If the margin allows 4 lots, trade only 2; reserve the rest as a buffer. Stress-test for worst-case stop-loss hits.

Enforce Strict Limits

• Cap at 2-4 trades per day/week; set daily loss thresholds (e.g., 2% drawdown triggers logout
• Book partial profits on winners and trail stops

Analyse every trade: Rationale, emotions, costs, outcomes. Weekly reviews identify patterns like post-loss impulsiveness.

Be rational (professional) rather than emotional (amateur); take any SL sportingly as an insurance cover to protect overall capital

Build Long-Term Discipline

• Start with paper/DEMO trading.
• If required, seek professional service from experienced & skilled independent analysts (test via demo).
• Reward rule adherence over profits.
• If you have a time constraint, prioritise delivery-based investing over FNO trading

Conclusion

Professional analysis & trading is not rocket science, but it requires adequate capital, a proper trading/charting system, discipline and skill to analyse or understand both technicals & fundamentals. Even if your winning rate is 60%, you can be in profit. If you are in a separate job and can’t give adequate time to analysis and FNO trading, avoid leveraged trading and focus on only short-term and long-term investments without any leverage. Invest only in quality, known blue chips that you can trust. Employ a policy not to book any loss, unless there is any significant news affecting the company/scrip structurally for the long term.

The Indian FNO market is not suitable for scalping or even HFT at present for small retail traders due to minimal intraday volatility (~1%; 250 points in Nifty) and higher cost. In such a calm market, overtrading often causes the destruction of wealth along with mental agony. But one can go for swing trade, 2-4 per day as per the overall market trend, ensuring a professional-like trading system, discipline, mindset, adequate trading capital and structured strategies. If you opt for positional trade (1-5 days) in the FNO segment, ensure proper hedge against overnight positions. These policies/rules may help retail traders avoid an impulsive mindset and ensure professional restraint. Balancing the return of capital (in safe trading mode) and the return on capital (profits) remains the key in 2026