The Top 10 Reasons Forex Traders Overtrade
It is true that the more you practice, the better you become with what you do. However ,in trading, the more you trade, the more likely you are going to lose. If we believe that 90% of traders are losers, doesn’t it make sense that the more they trade the less loses they would make? A lion has been known to wait for hours and days to make a kill and their win loss ratio is high because of this. It will wait patiently until it sees the week prey detached from the main herd.
Over trading 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. There are various reasons that forex traders over trade here are mine.
1.Excitement
2.Trading according to your past
It is a common theme with even experienced forex traders that the first thing we look at when we open our forex trading platforms is the profit and loss section. We had a goal for $1000 this week and we have a net loss of $500 .So we decide we are going to make $1500 today to recoup our previous loses.
“I can’t believe I have lost that much money? ” The next thing you know, we have set up a revenge trade to show the world that we are the best traders. Most of the time we don’t even follow forex money management rules and instead trade 3 lots instead of the usual 1.
The trader is panicking and this type of forex trading only leads to worse loses. This is not a strange phenomenon. Forex brokers are used to seeing a trader trade 1 lot for 1 week then move on to 3 lots in a span of 1 hour.A trader needs to understand that there shall be bad days for even the best forex trading system. Most forex traders will tell you that they failed in trading because a certain trading system does not work. However , most have failed because of this one reason alone.
Learn how to trade the market not your account size and trying to cover loses.
3.Scalping in Forex
Unless you are a floor trader and have nerves of steel ,forget about scalping the forex market. I have yet to see any forex scalper who has lasted 3 months. Most scalpers fall in the group of traders who have made a few loses with their best forex system and have found an easy way to make up their loses. Their idea is that if they can only make 10 pips in 10 trades they will make the $1000 needed to cover their loses.
Forex money management principles are very easy. Your winners should be larger in value than your loses .If you are consistently losing 10 pips and then exiting a trade that would have made you 50 pips at 10 pips, you are going to stop trading sooner than you think. The caveat being that you have a system that has 90% winning trades in which case, you are in the wrong forex blog.
4.Forex Trader Overconfidence
There is a reason why younger people are better traders than older ones. Somehow the younger you are ,the less of an ego you have.Leaving your ego behind is the mantra for anyone who wishes to be a trend trader. It is not you who is deciding the the gbpjpy is going up, it is the market. After one has made a trade, good or bad, you should leave that ego at the doorstep.Exit bad trades and hold on to good trades and exit when your goal is reached. I have told so many people that I only go for 50 pips a week. There is a reason for that. I discovered that when I go for more, greed sets in and I want to go for 200 pips.
As a trader, one should learn to take make each forex trade mutually exclusive of any other trade he/she has ever taken. Forget about the huge 100 pips win you made yesterday and the 100 pips loss you made yesterday. Just follow your forex trading plan and let the market decide for you.
If you find yourself in a position where you always lose money in one currency pair but consistently are profitable with another, don’t fight it. Some time back I discovered that I was always losing trading the yen and always reading other peoples opinion trading the euro currency. However my win rate with gbpjpy, usdchf and gbpusd was good. So these days I never look at usdjpy or eurousd. I really wouldn’t care if the jpy went up 1000 pips today and I only made 10 pips on my pairs.
Be careful not to let your ego get deflated either. Just because the market went against you today, doesn’t mean it will do the same today. In fact it is more likely to go your way with other traders who have lost hope sitting by the wayside like you.Good luck is not a good forex trading strategy either. Take those good luck trades but don’t forget that even good luck becomes bad sometime.
5.Missing a Forex Trade
Missing a trade is not the end of the world. I missed a whole week forex trading .I was annoyed but at the same time, why should I care. I might have put the wrong trade and lost instead. It is a common thing for forex traders chasing the market. You have come to your computer and found that the pound has already moved 20 pips in one direction and you decide you can see a huge move and enter willy nilly. Instead of waiting for retracements , you just place your trade. Normally the market goes back those 20 pips and you are in the red and you close your trade. Then it starts moving again and in the space of 5 minutes you have placed 5 trades.
Wait for your trade, if you miss the initial move, use the guppy, it will tell you when the market has retraced enough for you to enter the market.
We shall continue with this series later.
They are some interesting think pieces, especially, The Top 10 Reasons Forex Traders Overtrade that you have posted on your blog. I\’m going to have to take the time to actually sift through them for some ideas. Thanks Again, James. Momentum Trading
[...] is not easy especially if you don’t have a good forex mentor ,good money management or even overtrade your forex account. In short if you don’t know how to choose your forex system , you might get the best forex [...]
[...] enter the market when all time frames are in the same direction. This avoids the problem of overtrading. So if the 60 min trend is down and the 30 min trend is down, follow the entry rules on the original [...]
If you want to start with forex trading I recommend you a small first investment. It is a pretty volatile and risky business. You can have huge profits with forex, but huge losses too… so you have to be careful.
No one can predict market movement, but you can use several tools and indicators that may help you to find your entry and exit conditions. It is rather an art than a science so you will have to read and study a lot before become very profitable.
For forex brokers I can recommend you easyforex.com. There is a very good review of them at http://www.thereviews4u.com
Good Luck. And remember only invest money you can afford to lose.
[...] a list of 10 top reason why people overtrade and here’s a good list of overtrade symptoms. I fall [...]
[...] posted by Nia Trading Signal. FOREX Tips, How To Written by Kevin Lee on May 2, [...]
I agree. And you gave a very interesting and important lesson that can be seen from the lion. A lion will wait a long time to strike and make the kill. However, when it does do this then the lion makes it count. Forex trading should be the same way.
Some good points in your post.
You might not be successful at scalping and you might not know others who are either, but I have made a living from it for 4 years, as have a few colleagues.
It’s VERY difficult, and only a small percentage succeed. Just like only a small percentage become wealthy CEO’s or business owners or win the Olympics and World Titles.
Being the best in anything in life is a rare achievement, and average Joe is usually not prepared to do what it takes to be the best. Those who do not achieve should not declare the quest impossible.
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