Forex Trader’s Guide to Sidestepping the Overtrading Pit

To err is human’. Forex traders also make mistakes because after all they too are human. While there are quite a lot of mistakes that each trader may commit during his / her trading encounters, there is a common one that binds all of the traders together. Well, this common blunder is a very notorious culprit called ‘overtrading’.To err is human’. Forex traders also make mistakes because after all they too are human. While there are quite a lot of mistakes that each trader may commit during his / her trading encounters, there is a common one that binds all of the traders together. Well, this common blunder is a very notorious culprit called ‘overtrading’.

Yeah, most of us have been there and done that. But it is not just enough to accept that it is a widely prevalent mistake; we need to do something about overcoming our pitfalls. This post is aimed at doing exactly that, so read on.

Do You Overtrade?

You just read that overtrading is a widely prevalent error and you are now not so sure whether you are guilty of that crime / not. Well, this ambiguity is the real reason behind the wide reach of this problem.

It is actually quite easy to fall into a pit when you don’t even see it coming or you don’t even know how a pit looks like, right? This ‘overtrading’ behaves like a sneaking thief, who tries to overpower you when you are passing through a dark and deserted alley at night.

It is obvious that no trader worth his trade would ever knowingly jump into overtrading because it can bring in untimely and avoidable losses.

The saddest part is that even the most cautious of the traders could be overcome by this sneaking thief.

Scenario 1

For example, let us suppose that you are a newbie at forex trading and have promised yourself not to risk anything before you completely learn and master the art of price action trading on daily charts. But it does not take too long to slip and keep looking more at the lower time frames when compared to the daily charts. Beware this is the thief’s trap and if you slip here, then you will definitely be overthrown.

Lower time frames are typically filled with trade setups with a lower-probability of success. You would not find many of them in your daily charts, but because you are scrutinizing the lower time frames, you are now fooled into taking chances where they are not present and needless to say if you follow this train of thought, your account will get derailed soon due to overtrading.

Scenario 2

Sometimes you tend to get overpowered by your own emotions, instead of the thief. You may be feeling unusually exuberant because of a recent profitable trade. Remember success is very much like alcohol and both can often cloud your judgment. Just like alcohol, you must learn to keep it in control and not go overboard.

Just because you tasted success on a recent trade is no excuse to throw all caution to the wind and dive into overtrading. No, forex trading is not a game of chance, where you will win at anything when you are running a lucky streak.

Both the scenarios described above are perfectly good examples of real world situations when overtrading is indulged in even by the best of the lot. Remember that emotions and lack of knowledge are a dangerous combination that can disrupt anything and anyone.

Do not indulge in trading when you are being held captive by your emotions and the best practice is to do all of your planning and forex trade strategy building when you are in a position to distance yourself from the volatile stimulus of the market and active trading environment.

Now that you have learnt to diagnose the problem, you must learn to prevent this from happening to you in future. Well, for that there are a few practical tips to follow.

Plan to Succeed Not to Fail

Yeah, the right way to begin is by planning right. If you have the right forex trading plan to guide your trades and actions in the market, then the chances of indulging in overtrading are quite minimized. But don’t just create a plan and then forget all about it. Develop a firm resolve to stick to your plan, come what may.

Focus on Your Target

You know what the difference between a machine gunner and a sniper is? Well, they both use guns but when it comes to focus and targeting, they are both poles apart. A machine gunner is probably a maniac or a desperate person who has got access to a gun but does not know what to do with it. So he decides to pull the trigger and from that point onwards, it is the gun that leads him and whatever comes in the way of the machine gun gets targeted.

But a sniper is quite a different species altogether. He has spent days, months and maybe years in practicing and learning to shoot his target. When he decides to shoot, he is in total control of his gun and it gets only those whom he wants to target. As a forex trader you have to emulate the sniper. Trade like a sniper and not a machine gunner. Do not let the trade control you; you control it to go the way you want it to.

Quality Supersedes Quantity

Too much of anything can be dangerous and it is better to follow this rule when you are trying to scrutinize charts, compare currencies, analyzing indicators or studying the market. Information overload is definitely not productive and this mad race to accumulate more can actually make way for more losses.

When you are exposed to too much of data or information, then your ability to make sense of all that information tends to diminish and nothing beneficial will come out of it, except maybe manifesting signals and indications that are not even there. These will eventually lead to overtrading and you will be greatly involved it without even realizing.

Overtrading is a dangerous habit and accessing too much of information can sometimes be the reason for developing this bad habit.