Over Trading Is A Forex Trader’s Biggest Mistake
Over-trading is perhaps the most prevalent trading mistake that Forex traders make. This article will fully explore over-trading and provide some solid tips to help you overcome this extremely destructive emotional trading problem.
• Are you over-trading?
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. The problem with over-trading is that it can be difficult for the trader to know if they are doing it or not because it has many different ways of “sneaking” up on you without you realizing it.
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. This is because lower time frames tend to be riddled with lower-probability trade setups that often tempt traders to take positions that they would not have otherwise taken had they been focused on the daily charts.
Another example; do you enter into additional trades just because your current trade is in profit and you’ve moved to breakeven? 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.
Due to the fact that the emotion-inducing situations that occur in the market can sometimes be hard to detect and sometimes even over-whelming, we have to combat this enemy by planning out our trading plan and trading strategies while we are away from the market and not in any trades…
• The best way to stop over-trading is before you start…
As we just discussed above; because it can be difficult to realize you are over-trading when you are “in the moment” of trading, it is best to simply go on the offensive against over-trading by planning your trading strategy and trading plan in advance.
We can think of trading as a sort of war. The war basically boils down to your logical or objective brain mechanisms vs. your “fight or flight” or emotional brain mechanisms. It is extremely difficult to over-ride thousands of years of human-brain evolution…especially “in the moment”. The best way to win this war is to make a comprehensive forex trading plan, and stick to it…passionately.
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. Trading the markets naturally induces emotion and emotional trading…so if you don’t purposely make a plan to counter this reality, you are almost certain to over-trade.
• Trading like a sniper…
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. If you are over-trading you are definitely not trading like a sniper, instead you are trading like a machine gunner by “shooting” at many more trades than you should…or by simply shooting at anything that you “feel” is a trade setup.
Not having mastered a proven and effective trading strategy like price action will also induce over-trading. Simply put…we want to trade like a sniper and not a machine gunner, and if you don’t know what your trading strategy is…and / or have not fully mastered it…there is no way you can trade with a high enough rate of skill to pick your trades like sniper. Basically, if you don’t know exactly what you are looking for in the market you will end up over-trading / shooting at every little thing that looks like a trade.
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.
Let’s take a look at the recent daily chart of the EURUSD and analyze the difference between over-trading and trading like a sniper…
(See the explanations corresponding to each number below the chart)
1. At point one we can see two inside bars formed off support through 1.4050-1.4000. 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.
2. At point two we can see a bullish pin bar setup that formed off the 1.4050-1.4000 support area mentioned above. 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.
3. At point three we can see a bearish pin bar strategy that had good formation / definition and appeared to be in-line with the recent downward thrust. 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 1.4050-1.4000. A trader who is patient and skilled, and with a trading plan, very likely would have not traded this setup due to the fact that it required them to sell into a significant core support level.
4. At point four we can see another bullish pin bar setup that formed off the 1.4050-1.4000 support area. 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.
5. At point five we can see two pin bars that formed. These two pin bars had proper form…but this is a good example of the fact that a price bar formation is not really a price action setup unless it has some factors of confluence behind it. These pin bars were just “hanging” in the middle of nowhere with no supporting factors behind them; they weren’t off any core support level and resistance was pretty close overhead, limiting the risk reward potential. This was a setup that the skilled and patient price action trader very likely would have passed on.
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. Even if there are two valid and high-quality setups in both pairs, you would not take both, you would use your discretionary price action trading skills to pick the better of the two setups and stick with that one.
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. You should view over-trading as two emotional trading errors in one; over-trading AND over-leveraging, because by over-trading you are also risking too much money.
• Less IS More…
If you really want to stop over-trading you are going to have to realize that less is more in forex. Unfortunately, many Fx traders come into the market with the opposite attitude; more is better. Aspiring traders tend to think that more trading is better, more indicators are better, more analysis is better, more hours in front of the computer is better, etc. However, this is definitely NOT the case and you need to understand this if you want to stop over-trading…
Spending too much time in front of your charts induces over-trading because you will over-analyze the nearly limitless amount of market-related variables out there and end up “manifesting” signals that aren’t actually there. Learn to “set and forget” and trade end-of-day strategies, if you can do this you will greatly reduce your chances of becoming a chronic over-trader. Remember, over-analyzing leads to over-trading.
Obviously, in the beginning of your trading career you’ll need to spend more time with the markets because you’ll need to learn and master your strategy, but once this is done there really is no point in sitting in front of your computer for hours trying to “figure out” what is going to happen….because you can’t “figure it out”, all you can do is master your forex strategy, develop a plan and routine around it, and follow it with discipline.
Also, many traders try trading 15 different trading patterns or setups or who knows what else. My price action strategies are effective yet concise; my setups condense many redundant candlestick patterns into a handful of powerful price action strategies that are easy to learn and to trade. If you look at any candlestick book you will soon realize many of the patterns are very similar and this tends to confuse traders, I have eliminated this problem with the way I teach price action. It helps to eliminate trade frequency / over-trading by focusing your attention to a more refined set of trading strategies, instead of spreading your focus out over too wide a spectrum.
• You can control yourself, not the market…
Simply put; over-traders are trying to control the market…you need to honestly stop and ask yourself if you think you feel like you are trying to control the market. Once you realize and fully ACCEPT that you really have NO control over the market, you will begin to think differently because you will realize you have to master a trading edge…and then you have to only trade when the market shows you your edge. To learn an effective trading edge, check out my price action Forex trading course. Learn to control yourself rather than the market…if you want to stop over-trading.
46 Comments Leave a Comment
Hello, you are great, you showed me the way. It’s very good. I wish you success
Thank you Nial for opening my trading eyes.
is price action really effective on 1hr time frame?
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. Please keep it up.
I shouldn’t use too many indicators, confused myself. Thank you Nial.
Great article! The idea behind it is very smart. Over-trading is a mistake a lot of traders commit. I use to tell people : don’t rush your trades, wait for opportunities.
I like the way you use a support and resistance model to illustrate your toughts. Sometimes it is almost crystal clear a currency pair is overbought or oversold, and this is a good timing to get a nice entry on a position.
Your posts are very interesting. Keep it up!
Worth every dollar!!
I really liked the article, and the very cool blog
Hey Nial,i hope u consider what u gat goin here as philantrophy,u are touchin lives Nial,good work.may d Lord b with u.more power 2 yr elbows
Spot on as usual Nial!
I love the way you handle this issue off over trading and is actaully the case. Thank you for help we the beginners to over Emotion and fear that cause over trading.
Brilliant article once again Nial, its a good reminder for me to be reading this as it helps me get on the road of consistency. Keep up the good work, tons of appreciation for you showing the path to good trading! Cheers
Thanks for such a great article. I used to be a machine-gunner but since I came across your price action lesssons I am now a deadly sniper who is consistently profitable. Keep up with the good work and thank you for being such a wonderful mentor.
Nail, Great article, overtrading is so contagiuos, you never know you were in it, unless someone outside remind us. This article is reminder and a key note in everyone’s trading plan. Wish the articles keep continuning as it’s a hope for aspiring traders…
Thank you once again for a great piece of advice..
Very good article as usual Nial,The chart examples shown were particulaly good,please show more in the future. Andrew T…….
Still getting my head around looking at charts with no indicators, good stuff Nial.
As always fantastic presentation of a core principle, amazing how quickly I can ‘forget’ (or more likely ignore) the basics
I can’t control the market
The differentiation of a successful trader is just that he knows what he’s doing
He has a trading plan and when his edge is present he plans his specific trade, sets entry, stop, take profit levels and position (or stake for spread betters) size and walks away.
He then diligently records all of his trades and keeps alive the ‘expected success rate’ of his trading plans’ strategy (or strategies if he uses more than one). Thus every time that particular edge or strategy trade set up appears, he cooly, with no concern for anything else going on in the fundamentals, places his trade in the knowledge that it has an x% chance of being successful and a (1-x%) change of being stopped out for a loss.
How? Because that is what his journal results tell him over a very large sample size of trades
At the end of the month, he knows that providing he has followed his trading plan diligently, his trading account will be Y% greater than it was at the start of the month, regardless of whether this specific trade now today ‘in the moment’ turns out to be a winner or a loser.
This is the experience of the successful trader and how he ‘knows what he is doing’
Seems so simple and obvious, so why does each trade have such a massive emotional weight associated with it?
keep up the excellent work
This advice IS GREAT
I am guilty. Working on it. Thanks Nial
Great article, and great explanation – it really help me understand the importance in confluence.
Thanks a lot
Thanks for the article. I always read them with concentration and soul searching >< They really talk to me.
Pliz keep the good work, and may you continue to be blessed.
Hi Nial, You must see what I did last week. Overtrading and finding signals without confluence…. Your article is clear , very useful for me and immediately shows me how I can improve my trading. Your style of writing is educative, funny and I love it. Thanks again and keep writing.
Thank you for pulling me back to the ground. I wish I had gotten this reminder-article three days ago before I kept trying to get the reversal that never came and I over-traded myself by wanting to control the market on my own.
Althought we constantly hear it and read it again and again, it is amazing how often we tend to forget the basic advices.
Thanks Nial as always. The volatility in the market today is easy to trade and is a process of logic over emotion. Even when I watch the corrections “price action” has been my ultimate indicator. Todays lesson is confirmation of what I’ve been thinking, enter my trades like a sniper and using the daily chart as the battlefield. As you say I have no control over the market. So patience is key.
superb lesson but imtrying not to over trad but keep doing it i dont know why,thanks nial hope i can start controle myself overtrading,
The article is excellent as usual. The chart examples are superb. I hope future articles can include similar charts that show both good and poor setups with the explanations of the factors that make them good or poor.
Thank you Nial.
Great price action examples..I think equally valid on 15min time frame
I must say this was a timely reminder for me, especially on the over-exposure part. I didn’t really trade for the past few weeks, till this week when I start to see good setups going on and start trading more than my planned max 2 trades per week. There will be time when there’s not much opportunity in a week or two, but we have to be ready when the it comes. Sniper rule.. be patient.
Great article Nial.
A wonderful article at †ђε right time. Nial you arε †ђε man keep up †ђε G̶̲̥̅Ơ̴̴̴̴͡.̮Ơ̴̴̴͡D̶̲̥̅ work. Thanks
In my demo, I made $160 per trade 10 times streight trading huge lots and just one trade cost me $5000, just missing by 1 pip. This is overtrading.
This is exactly like my wife tells me!! Excellent Artical !! I have printed and put in front of my desk. I ready every artical from you and learn something everyday. Your notes many times just a good mentor for me. Keep writing good articals like this one !! Thank you Nial.
thank you for your ‘guiding article”…to the point , as always..
bless…have a good week-end
greets from germany!
thank you very much for your article. it really helped me to be more critical with my actual trading style;)
i love reading your articles.
Another superb lesson, and having engaged in a lot of what you have written about I am going to go back to basics and take the advice from this article.
Thanks for this article and the great examples
Your teaching style is so refreshing!
I must say that i love the way you analyzed those price action setups on the Eur/Usd chart. It really helps to know valid and invalid setups. Cheers!
I’m so satisfied with the course notes and your aditional stream of information.Until few months ago, I read the notes and didn’t do exactly what you said. I didn’t value the whole picture.After re-reading the notes(a lot of times), studying the videos, I suddenly understood the importance of confluence.My trading results changed immediately! Nial,I don’t know what you are made of, but sharing this information like you do,I’m so thankful and impressed about Your work.Thanks again,Nial!
I timely reminder. I actually had the inclination this week that I was ‘over-trading’. Thanks for drawing my attention to my current weekness Nial.., appreciated. Keep up the words of wisdon and knowledge. From a happy member.
very practical and useful. good as always. Many thanks.
What an amazing Artical mate…
Every point is so so important.
Keep up the clear and concise work!
Appreciate All your efforts.
I have been learning the pateint part last few weeks. It is very hard not to trade because You havent put a trade on for a week. That is a bad way to trade. I must say the Forum on LTTTM keeps me on track,
Timely article Nial
Exactly what I was looking for, thanks Nial!
Hope you are well. Another superb lesson. Thank you so very much.
Thank you for all your help
Thanks and Regards
Great article Nial , I like the chart example you showed to show how are professional trader would view the market. Keep up the good work. Shane