What is forex overtrading: consequences and solutions – Trading Psychology

Do you want to know more about trading psychology? Watch our latest video to find out what is forex overtrading and how to stop it.

What is forex overtrading and how to stop it

When it comes to psychology, overtrading is probably one of the most common issues the traders face. This is a combination of a fear of missing a move, and of course simple boredom. Unfortunately, most traders enter the Forex markets due to the desire to get wealthy, and normally are attracted to them originally by some type of advertisement promising easy riches.

It is because of this that traders typically are not patient enough to wait for a promising trade, and they get involved in the market before it is wise. This typically means that they will break their strategy, and sometimes even trade against it.

Looking at the USD/CZK pair, you can see plainly on this chart that the US dollar has been falling against the Czech koruna for a very long time. This is an exotic pair, but it shows the one thing that most Forex markets will do: trend over the long term. Clearly, this was an easy trade in hindsight, simply selling the US dollar was the way to go. Unfortunately, many traders do not simplify their trading to this point.

When you look at the chart, you can see that there were occasional rally is that occurred, but at the end of the day they all sold off. By simply selling the rallies instead of trying to aggressively short every time you felt like pulling the trigger, you got better entries, and therefore better profits. Alternately, I can promise you that there were plenty of people out there willing to buying this pair because it had “gone too far” and figured that it was due for a bounce. Those people got hurt as you can plainly see.

Both trades are born out of boredom, and the desire to get rich overnight. This leads to overtrading, which goes against proper money management, clear thinking, and most systems that I can think of. Overtrading is an absolute killer of trading accounts, because even if you are correct most of the time, at the very least you are paying more in transaction fees that are necessary.