The Authority’ on Price Action Trading. In 2016, Nial won 20 lots forex trading Million Dollar Trader Competition. If you don’t know if you are over-trading you probably are.
In fact, most traders who are not making money consistently in the markets are over-trading, whether they realize it or not. For example, if you have committed to learning and mastering the daily charts first, do you still find yourself going and looking at the lower time frames more than you are looking at the daily charts? This is a very easy way to start over-trading. Traders who have not yet mastered price action trading on the daily charts are very likely to over-trade if they focus on the lower time frames instead. Was the additional trade setup REALLY valid or did you jump the gun because you were feeling excited about your first profitable position? There are many other situations in addition to the two discussed above that constitute over-trading. The main problem is that many traders are simply unaware that they are over-trading when they are in the moment.
It is very easy to become fixated on a less-than-perfect trade setup and forget about your trading plan and not be consciously aware of whether or not you are over-trading. We can think of trading as a sort of war. The war basically boils down to your logical or objective brain mechanisms vs. I would bet money on the fact that if you are reading this right now, and you do not have a tangible and practical Forex trading plan, you are probably over-trading. It is absolutely essential to create a Forex trading plan and follow it if you want to get on and stay on the right trading path. All traders must do this in the beginning to develop the proper trading habits of logical and objective trading rather than emotional trading.
In a recent article I discussed the importance of learning to trade like a sniper. This concept is very important to overcoming your problem with over-trading. Not having mastered a proven and effective trading strategy like price action will also induce over-trading. If you’ve been following the recent Forex market activity you are surely aware that the EURUSD has been consolidating recently, actually for about 2 months now it’s been in a trading range.
I find that traders often over-trade in these types of consolidating markets because they lose patience or they simply do not know how to filter out the lower-probability trades in favor of the best price action trade setups. At point one we can see two inside bars formed off support through 1. This setup was valid because the support level had already been tested recently on two previous occasions, and the setup thus provided us with an obvious inside bar strategy from a confluent level and a good risk reward scenario. At point two we can see a bullish pin bar setup that formed off the 1.
This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward. Now, the difference here is that the risk reward scenario was very poor since you would have been shorting right into the previously established significant support level near 1. At point four we can see another bullish pin bar setup that formed off the 1. At point five we can see two pin bars that formed. Another way many traders end up over-trading is by over-exposure to correlated Forex currency pairs. For example, trading the EURUSD and the GBPUSD is essentially like taking two nearly identical positions since the pairs are very correlated and move in a similar manner. So, you have to be aware of this and make sure you aren’t doubling-up your position.
This point of over-trading by trading too many currency pairs at one time also brings up the point that over-trading is basically the same as over-leveraging your trading account. Some traders get lulled into thinking by taking multiple positions they are diversifying or spreading their risk out, but in fact most of the time they are just adding risk by taking a larger position spread out among multiple pairs. Also, many traders try trading 15 different trading patterns or setups or who knows what else. Thank you Nial for opening my trading eyes. I must say that you have reduced burden from newbi to use so many indicators and signals on the charts. A very nice and informative article. I shouldn’t use too many indicators, confused myself.