Danger of Overtrading – Reasons and Solutions

Overtrading is a familiar issue to all forex traders and is considered the most common pitfall. The compulsive, unanalyzed decisions to enter a trade and the disregard for the trading strategy often turn into an unpleasant and costly experience, therefore most forex traders try to select the very best trades and avoid overtrading at all cost.   

Danger of Overtrading in Forex

Danger of Overtrading – Reasons and Solutions

The most important thing is to distinguish between mindless overtrading and trading a lot but according to the strategy plan. There is nothing wrong with trading non-stop if it is a part of your successful system.  Overtrading, on the other hand, is triggered by greed, anger or revenge which is doomed in the long run. 

Many forex traders feel the need to make the money back after an unfortunate loss. The revenge instincts paralyze the logical sense, you completely ignore the money management strategy and you continue trading not because it is in your trading plan, but because you are too angry to stop. Revenge trading is definitely bad and only leads to a string of more losses. And if you are not careful, overtrading can set your entire forex account to flames. 

Overtrading is when your strategy plan says “ I make 50 trades per day” and you end up making 200! Generally it wouldn’t even be so disastrous if all 200 trades meet the criteria planned out for 50 trades. However, naturally overtrading is accompanied with series of other issues such as: 

  1. You are desperately trying to find a signal you can actually read to rationalize the unplanned trade. Sometimes you just need to let go and sit still because there are no good trades! Without fully accepting this you will end up emptying your forex account in no time.
  2. Staring at charts makes you feel the urge to trade. This is similar to a gambling addict who cannot stop from gambling the moment he sees a casino. Just because you have opened the trading platform and are looking at charts doesn’t necessary mean that you have to trade right here right now! 
  3. You are frustrated when forex trading platform is unavailable (for example, when you are in the shower, or went out shopping or taking your dog out for a walk). And you get super pissed when you see missed trades – the trades you could have made if only you were next to the computer at that moment. You secretly wish to stay awake for 24/7! 
  4. You make excuses not to follow your trading plan. You convince yourself that you will miss out on huge profits, that you are not risking very much, that you are enhancing your trading strategy with new moves, that your system isn’t perfect yet and, besides, you will only do this kind of trading once (yeah, right! Until next time overtrading takes over!) 
  5. You start thinking that the more you trade the more money you will make. Disoriented by profits, you might consider moving to 1-minute charts instead of 5-minute charts. After all, if you make tones of money with the current chart settings, imagine all the millions you make with 1-minute charts! In reality, greed is your worst enemy. 

Overtrading is a forex devil – he grabs you, twist you around, sends you flying up in the air and plunging back down. You HAVE to chase the forex market. You CAN’T miss out now! Let’s go long! No, let’s go short! You want your losses back! You want it now and quick. And ooopps, all of your money is gone… 

We all know that practice makes perfect, however in forex trading overtrading leads to losses. It is important to understand the existence of overtrading, to find out the reasons why it happens, to recognize the signs and to prevent it from happening. There is no one solution for every trader, so therefore each forex trader has to determine the overtrading reasons according to one’s trading style.  Keeping a journal of your trades can help figuring out if you are trading more than your forex plan calls for.

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