Submitted by admin on Thu, 11/29/2012 — 14:39

Most of the novice traders are under the impression that taking more trades and spending as much time as possible in front of the charts will give them a bigger piece of the pie. The truth is, this is just a myth. Overtrading will actually eat up your profits very quickly and today I want to discuss the reasons for this and destroy this myth once and for all.

First of all, it’s not a good idea to trade during times when there’s lack of liquidity in the market. The best trading opportunities occur in a timespan of a few hours after a trading session open (European Session. US Session. Asian Session ). If you trade during the lunch break of the European Session your probability of winning trades is significantly smaller than if you traded near the start of the session, when there is enough volume in the market to generate clear trends. This first point applies to intraday traders. of course, but long term traders aren’t the ones overtrading anyway, so we don’t have to cover them here.

Secondly, the more you sit in front of the screen and scan for trading opportunities. the more you are prone to error, because your focus is decreasing with each passing hour in front of the monitors. Your body has limits and your mind cannot stay clear for a full eight continuous hours, without missing important information that would normally be very clear. The result is giving back your hard earned profits to the market.

Thirdly, as you start giving back profits, your emotions will start kicking in: anger, fear, greed. The market is now your number one enemy. It has taken your profits and it’s time for you to revenge. With this kind of mindset. you will only be aggravating your situation and you’ll turn any profits you might have made during the day into a net loss .

The point is, even though the Forex Market is open 24 hours a day, 5 days of the week, that doesn’t mean you have to trade 24 hours a day. It’s a lesson I’ve learned the hard way. When I had my first live account. I made over 250 trades in 16 hours of sitting in front of the computer screen. Trading can be addictive at first and it’s when you have this urge to overtrade that you lose most of your money in the markets. When you start getting a bit of consistency. you will notice that trading has become almost boring, because you’re following a set of clear rules, you have a set of written goals and no particular winning or losing trade is going to disturb or excite you anymore: you know that a particular trade isn’t relevant. What is relevant is the result after 100 or more trades. You only analyze your losses in order to correct your mistakes and not to beat yourself up and get scared. You only analyze your wins in order to reinforce your set of rules and build more confidence and not to get excited about it and start getting greedy.

That’s it for today. My advice until next time: stop overtrading !