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October 7, 2013

How to Avoid Excessive Trading on the FX Market

Excessive Trading in FX

Many new FX traders think that because the FX market is open 24 hours they should trade FX for as long as they want.  While there is nothing stopping you from trading there is a problem with this attitude.  Excessive FX trading is a very negative psychological trap that a lot of FX traders fall into.  It is important that you understand the effects of excessive trading and the ways that you can avoid doing this.

What are the Effects of Excessive FX Trading?

Many FX traders do not realise that they are trading excessively and this is a major problem.  Some traders do not overtrade all the time and this is what makes it hard to identify.  However, it is possible to see the effects that overtrading has on all traders, whether they do this occasionally or all the time.

The first effect is that you will lose on your trades.  This effect is harder to identify than many others because losing trades is a part of forex trading.  However, you will find streaks of losing trades which were opened around the same time.  If you see this you may be overtrading.

The second effect does not relate to your trades, but your mental and physical state.  When you overtrade you will feel mental and physical fatigue.  This comes from staying up too late and from the continued pressures of the market.  If you feel tired when you trade you may want to consider how long it was since you took a break.

How to Avoid Overtrading

There are a number of ways that you can avoid overtrading.  It is important that you know what these methods are so you do not fall into overtrading without realising it.  The first and easiest method to implement is a trading schedule.  When you create your trading strategy you should choose a currency pair to trade.  Currency pairs trade best at certain times and you need to identify the best times for your pair.  Your trading schedule should detail when you should be trading and when you should not be trading.  If you do not follow this then you may be overtrading.

Another method of limiting overtrading is to have a set number of trades per day that you are allowed to complete.  This should be based on your trading strategy as certain strategies require more trades than others.  You need to consider the number of trades needed to correctly use your strategy and only complete that amount.  If you complete more than this then you are likely overtrading.

Another way to avoid overtrading is to have set indictors that you use and not divert from this.  This method should be used in conjunction with your trading schedule.  During the set times of your trading you should only look at the indicators you have set forth in your trading system.  If you do not see the indicators then you should not trade.  A lot of overtrading comes from impulse trades where you are following the crowd in the hopes of making a profit.  Not only is this emotional trading it is also trading that is based on rumour and not facts.

 

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