You are putting great efforts at forex trading and making some wins. But, somehow, you end up with losses at the end of the month. Among other problems, you could be overtrading to undermine your efforts negatively.
As expounded in this article, forex traders should understand and thereby effectively solve the problem.
What Is Overtrading?
Quite often, many traders struggle under the impacts of overtrading and have no little clue on overtrade meaning. Most of them have a nagging feeling to always be in the forex market or are very impatient with their plans.
Whatever their reason is, overtrading is participating in trades outside your trading plans that cause you to exceed your risk tolerance limit.
Time frames and the number of trades is not the root cause of overtrading. It is more of an indiscipline approach towards your trading plans.
Besides, if you don’t have a trading strategy, time frames will not make any difference.
And if you want to deal with the problem of overtrading, then start with your trading psychology and address the root cause of overtrading in forex business.
Indiscipline, forex emotions, and lack of trading strategy are the primary causes of overtrading.
Symptoms Of Over Trading
Having learned overtrade meaning, next, what are the symptoms of over trading in forex business? Here are the signs to help you determine if you are overtrading or not.
First, you lack a trading strategy, or even if you have one, you don’t follow it strictly. Trading without or not sticking to a plan is hazardous. In most cases, it leads to over trading and under trading in forex.
Trading over your risk tolerance limit is top among the symptoms of overtrading. While aiming for profits, you might be tempted to trade more frequently, contrary to your trading plans leading to overtrading.
Over trading and under trading in the forex business is also determined by your trading style. For instance, if you are a position trader, trading daily is a clear signal of over trading in forex.
Causes Of Overtrading
Main causes of overtrading are;
Emotional Trading
It is only human to have feelings and emotions as you watch prices fluctuate or on a bullish run and feel bad on missing out. The missed opportunity evokes the Fear of missing out (FOMO) emotions as no trader wants to miss out on profits.
Furthermore, FOMO is worsened when you look at forex prices movement after trades and wonder why you missed.
Most people fear to make losses in the forex business. Losing a trade is bad for your image and ego. Fear of losing may drive you to overtrade while trying to recover the lost money. This Fear of losing emotion often causes traders to overtrade or undertrade.
The greedy pigs get slaughtered — a common phrase in the forex market to warn the greedy traders. The emotion of greediness overcomes the greedy traders. This makes them engage and overtrade in many trades, including even the bad ones.
The excitement in forex, if not controlled, is terrible and leads to overtrading and losses in forex. The enthusiasm may arise from winnings making you think you are on a winning streak.
It may also occur from excitement in fast changes in prices. Whatever the reason, excitement always makes a trader abandon trading plans.
In most situations in life, you reap more by putting more effort. However, this is not the case in forex trading — increasing the risk of money only leads to more losses and not profits.
The 80 Rule Trading
Winners in forex trading will tell you that there are no excellent trades most of the time and can be explained by the 80 rule trading, also known as the Pareto Principle.
The principle suggests that about 80 percent of forex traders will not make profits. It is always a handful of 20 percent of them will be successful.
According to the Pareto principle, 80 percent of profits arise from less than 20 percent of the opportunities to be profitable. The successful forex traders understand the 80 rule trading.
They know that from trading in many trades over a long time, they only need a few wins to be profitable in forex trading. Hence, the best way to make money in forex trading is to trade patiently over some time.
The principle applies to other spheres of lives also.
How To Stop Overtrading In Forex
The consequences of overtrading are huge losses and frustrations. To overcome over trading in forex business, it is best to apply the following measures:
Have a trading strategy and stick to it:
To guide you in forex trading and how to overcome over trading and under trading in business, it is best to have a trading plan in place. Apart from having the plans, it is better to use and stick to it.
And if you want the plans to work for you, then have discipline and patience. Develop the discipline to follow and stick to your plans while patiently waiting for the plans to work for you.
Remember to test the effectiveness of your forex trading strategy by practicing it on the free demo accounts. The practices will improve your trading confidence while testing the strategy itself.
Control your emotions in trading:
It is said that what hurts the tree most is not the sharp axe but the fact that its handle is made of wood. Relatively, your emotions are your worst enemy in forex trading, which can make you make irrational decisions such as over trading and under trading.
Controlling the emotions will help you trade with a clear mind, thus avoiding mistakes such as over trading and under trading. Remember, in each day that you don’t trade you won’t lose money.
Opportunities will always be there, and there is no need to worry if you don’t trade or have a few trades.
Forex Education
As you think of entering or continuing in forex trading, it pays a lot to have forex knowledge. Do market research and update yourself on the latest news and events that impact foreign exchange currency trading.
Learning strengthens your understanding of forex trade and the best strategies to adopt for profitability in forex trade.
Forex knowledge will also enhance your awareness of over trading in financial management and how to solve it.
Risk Management
Having effective risk management is another strategy to avoid overtrade in forex. Risk management strategy entails outlining stops, entry point, exit points, and risk-reward ratio.
Always make sure to put up rules and measures in your risk management strategy that will minimize forex mistakes impacts to manageable levels.
One of the steps that you can use to your advantage is setting maximum risk per trade. And to trade consistently always sets a sustainable risk per trade to less than 2 %, but it’s a personal decision.
As you ponder how to overcome overtrading in business, it is best to set a risk-reward 0f 1:3 or better, but again it is a personal choice.
Conclusion
How to overcome overtrading in business begins with the trader. To trade consistently then have a good trading strategy and risk management plans in place.
Forex education will broaden the understanding and impacts of over trading in financial management. As you endeavor to be profitable in forex trading always execute your trading plans within your tolerance limits.
Must Read To Flourish Trading Mindset Approach:
what are common psychological trading mistakes
How to overcome fear psychology in trading?
How to create a winning forex trading plan
Top Golden Rules of Trading Discipline
Top 13 consistent forex trading tips
