Trading Forex - Overtrading ~ Forex trade alerts

Thursday, October 13, 2011

Trading Forex - Overtrading

5:52 PM

Forex Bond

Whole libraries have been written and published on a topic of trading errors. Almost every trader with some experience has its own list of pitfalls. It can range from lack of capitalization on the use of the general education market. While the list is very long, a few mistakes in the list on a consistent basis. One of them is overtrading.

It 'easy to say, but when exactly is overtrading happening, and how we define it? Even more important, as werecognize and prevent it from happening? It is not an easy answer is for all operators, as they are determined only in light of the "trading style people.

Forex Trade Alerts

Perhaps the easiest type of overtrading to recognize happens to traders who must be clearly defined, systematic approach to use. In other words, mechanical trading systems. If you are the signals generated by the software to the market or some other form of auto-trading and start taking more and more trades outside of the system isprobably ovetrading. This happens usually during period of time when the system is under performing. Since all systems go through weak periods, it might easily happen to everybody. Good news is, this is easy to notice and correct.

More difficult to pinpoint is overtrading happening to discretionary traders. Those who do not use mechanical systems are generally speaking trading in a discretionary manner. However, even here traders follow some strategy. These could be price breakouts, reversals, times of day or many, many other possible set ups that trigger a trade. It's good to look at a number of trades say from week to week, analyze both entry and exit points and, of course, results. If you take more and more trades, with slipping results, you might be overtrading. Traders often tell themselves they are "optimizing" their strategy, or employing new method. If that's the case, you can always open additional account to trade another approach. That should make it easier to notice any problems, like nonperforming system, not following your rules or overtrading.

Day traders who start leaving position open overnight or find themselves sitting in from of computer longer and longer, are almost certainly overtrading. Just because Forex can be traded 24 hour, doesn't mean it should be. Determine the time of the day most suitable to your lifestyle or fitting your trading strategy and stick to it. Around the clock trading availability is not a trading necessity.

Trading too many markets at once. There really is no need for an individual trader to have an open position in 15-20 pairs at the same time. First of all, this uses up available margin collateral very quickly. That can easily lead to a margin based liquidation if enough positions turn against you. Also, this kind of "dart board" approach implies that trader analyzed all those crosses and has a well developed strategy for all. In most cases it very unlikely.

Yet another form of overtrading is always having an open position. This suggests, that trade opportunity is ever-present and one always knows what it is. That is simply not possible, furthermore it exposes trader to a constant market risk. Trader who is always in the market is very likely not pursuing well defined trading plan.

Overtrading ranks as one of the most common trading pitfalls. Thankfully, it's also the one that is most easily avoided. Unlike intrinsic market risk, this one can be controlled by an individual. Periodical review of trades can show if you are trading more than your trading plan calls for.

Trading Forex - Overtrading