What is Overtrading?
In the world of forex trading, overtrading is basically where traders place more trades that they should.
So in other words, if their chosen trading strategy typically finds one high probability set-up per day, they may end up placing two, three or four additional low quality trades if they find themselves getting bored, which will nearly always result in them losing money as a result.
Indeed overtrading is one of the main reasons why many traders struggle to make money in the long run.
Why Overtrading is a Major Problem for Full-Time Traders
Overtrading is something that particularly affects full-time traders because these people are more likely to be sat in front of their computers for most of the day looking for possible trading opportunities.
Subsequently, it is common for full-time traders to deviate from their trading strategies on occasions and take a lot more impulsive trades.
The reality is that when forex trading is your main income, it is very difficult to stay out the markets when there are no decent set-ups. You always have the feeling that you should be actively making money every day as this is your full-time profession, but it is this overtrading that causes so many problems.
How To Avoid Overtrading
Luckily there are a few ways that you can avoid placing too many trades. First of all, you can keep a trading diary and write comments for every single trade that you make.
So you should write down why you entered a particular trade and document why it was profitable, and conversely make a note of why it ended up losing money if it was an unprofitable trade.
If you entered an impulsive trade, you can simply write down ‘overtrading’ as one of the reasons because this will help you to see where you are going wrong when you go back over your trading diary, and will motivate you to avoid making these costly trades in the future.
Another way to avoid overtrading is to simply reduce the amount of time that you are sat in front of your computer or staring at your phone every day.
You don’t necessarily need to be watching the markets all day just because you have decided to make this your full-time job.
There are many full-time forex traders who will simply trade the first few hours of the London session, or the first few hours of the New York session, make their profits for the day and then switch off their computers for the rest of the day.
Similarly, there are other traders who will do all of their research on all of the major currency pairs before the markets open.
This enables them to plot their trendlines, fibonacci levels and other key levels of support and resistance on their charts so that they can enter their trades for the day in advance, along with their stop losses and target prices without having to actually sit in front of their computer all day.
Finally, one other way to avoid overtrading is to stop yourself from looking at the lower time frames. Higher time frames, such as the 4-hour and daily charts, for example, not only give more reliable signals, but they also give fewer signals than the lower time frames, which in turns makes it harder for you to overtrade.
Overtrading can easily prevent you from becoming a hugely profitable forex trader if you don’t have a lot of discipline, but it is something that can be avoided if you follow some of the tips listed above.
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