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Do You Overtrade?
Written by: PaxForex analytics dept - Thursday, 03 March 2016 0 comments
As a forex trader you have the potential to enter a trade 24 hours a day, about five and a half days a week, and this around-the-clock temptation to be in the market is nearly irresistible for many people. Indeed, many traders may not even be aware they are over-trading because it is an extremely easy mistake to fall prey to. For this reason you have to be well-prepared by making sure you understand what constitutes over-trading and by learning how to resist the temptation to trade too much.
One of the challenges a new trader faces is not when to trade, but rather when not to trade. Over trading is a common trap that many traders fall in to. If you’re an over active trader it can have consequences for your wealth. Knowing when to stay out of the forex market, and when to take risk “off the table” is a key skill that needs to be learned. There’s also strong evidence that shows traders who’re “over active” in financial markets have significantly worse returns than those who aren’t.
Over trading has been known to be both an emotional and psychologicalproblem. Most traders who over trade do it in frustration after going through many losses that they could not manage. So out of frustration they tend to trade more and more
without looking at the rules of trade in a bid to catch up on lost time and money. At times, those who over trade are people who feel over confident with themselves after realizing consistent profits so they start to over trade in a bid to make more only to lose in the end and break down.
For example, it is very easy to become fixated on a less-than-perfect trade and forget about your trading plan which will make you not consciously aware of whether or not you are over-trading. Another example is taking additional trades just because your current trade is in profit, and you’ve moved it to break-even. Was the additional trade really valid or did you jump the gun because you were feeling excited about your first profitable position?
You need to remember that when you developed the system, create an edge, you know exactly what the market needs to do to help you take advantage of low risk trading opportunities, what is left for you is just to take advantage of it. Losses will be around forever, professional traders know this and they know it’s impossible to win all trades. And those traders who look for high accuracy entries, most of the time (if not always) they have a very low risk reward ratio, which is what really help us trade consistently.