Forex Overtrading

It is said that overtrading ranks as one of the most common trading pitfalls in fx trading. It is the greatest single cause for losses in the markets. Whether you are winning now or losing now, ninety-five or more percent of all traders trade too often.

So what is exactly is overtrading and how are we going to recognize and prevent it? A good definition of overtrading is taking a position which is too large in relation to the available trading capital.

Overtrading typically comes in two main forms:

1. trading too many positions at once or trading too frequently in the market

2. always having an open position.

An essential tip in forex currency trading is that you should have no more than 5 positions when trading in the market. Any more than that will cause detriment on your focus in each one of your trades which will generate negative effects on your transactions.

Overtrading also causes impulsive trading. The trading that is done without control and caused by greed. It leads to more risk in your account and also reduces your win loss ratio. It also increases your cost of trading as each time you are trading ,you are paying the broker commissions.

One way to control a loss is by reducing your size. The problem with traders is that they will often double up their stake so they can get even quicker. This usually leads to a greater loss and devastation. It takes tremendous discipline to hold yourself back from overtrading. So having the strength to grind your way back from a loss is important in trading.

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Doug Muraski said...

I never knew what overtrading was thanks a good analyzation

Bhing said...

@Doug, You are welcome! :)

Aldhis said...

I believe this overtrading was related with your previous post about greed. :)
All that I know is everything with 'too much' or 'over' is not good for us. :P

Bhing said...

@Aldhis - you are right! Too much is not really good..

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