Overtrading in the forex market can mean one of two things. It can mean to literally trade too often in a short space of time, or it can mean putting too much money at risk at any one time.
It’s also possible to do both at once.
Either way, both examples of overtrading are, potentially, extremely damaging to your trading account. However, it’s also true that overtrading is a very common problem among traders.
So here are some solutions to fixing the problems of overtrading.
Guest post by FXTM
Longer Term Charts
If your overtrading problem is one of placing too many trades, there’s a good chance that the timeframes you are looking at are too short-term.
Short-term charts like tick charts, 1 minute charts, or 5 minute charts, vacillate wildly, which means that indicators on these charts often produce hundreds of trading signals a day. If you were to take all of these signals you would no doubt go broke very quickly as the commissions and spreads involved in each trade would eat into your returns.
The solution, then, is to only look at longer term charts. Hourly charts and upwards are good, and they are perfect time-frames for swing traders. Put it this way, if you get a signal on an hourly chart, you’ll have to wait at least another hour before you can legitimately close your trade.
Turn Off the Quote Screen
Just like it can pay to look at longer term charts if you want to stop trading every five minutes, it can be a good idea to turn off the quote screen altogether.
Indeed, quote screens, with their alluring lights and flashing colors, could just as well be at home next to the one armed bandits in the casino.
It might therefore be a better idea to keep away from the machine. If you have a strategy that you have tested (and this is key), then you can be confident enough to take a trade, turn off the quote screen and go about doing something else, (analysis, research or whatever).
There’s no way you’ll be able to make a trade when your quote screen is off, unless of course you have a trading app on your phone. I think the jury is still out as to whether mobile trading is really a benefit or a curse to most traders. Just because you can trade from your smartphone while you are out on the golf course doesn’t mean that you should.
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