Finance

Is Overtrading a Bad Thing?

The golden rule of overtrading is that ‘the market does not give many good opportunities.”

Typically, there is no good trade entry available. The best way to understand this can be learning about the Pareto Principle, stating that 80% of profits are from less than 20% of opportunities – unexpectedly, this principle is connected to other areas of life. The good news is that this is fine.

For instance, great investors investing in hundreds of small firms do not work on the basis that they wish 60% of the companies would make profits, while 40% will experience losses. Also, they know that of the hundred opportunities, they might only get two or three big winners. However, the profits there would be so high that they will more than compensate for the 97% of losers.

Moreover, financial markets are not that extreme, but it is reasonable to note that the easiest way to generate money in forex is to not be in a trade most of the time.

Choose Trade Entries Wisely

Above all, the essence of successful trading is to become as picky as possible in trade entries. The good entries are not just there most of the time. Successful traders need to know how to stand aside and do nothing during a time market is not giving any opportunities. No one can force the market to provide or open an opportunity; traders must only be ready to exploit the chances it gives. Also, there are a lot of traders who have the ability to generate money, who take good trades, but who fritter their winnings away due to failure of standing aside when the market is not giving good opportunities.

If traders are entering over three trades a week and are not a scalper, they are overtrading. Furthermore, if they do not have strict trade entry criteria, and traders find that their entries arrive every day; still, they are overtrading. Then, if traders get bored when there are no precise entries and still talk to themselves in entering new trades, that is overtrading.

Is There a Way to Stop Overtrading?

If traders are overtrading, they should have a clear and strict method for looking for trade entries and stick to it. They must back test their strategy and guarantee that it has become profitable over a long period of time and keep faith with it.

If there is no such entry opportunity, step aside. Ignore the itchy trigger finger and do not press the button. Also, traders should try to see every day to not trade as a day when they did not lose any money. Do not be like other traders; be proud at resisting temptation.

In case traders would go through a long period with a few or no opportunities at all, they can comfort that in financial markets – the darkest hour is most of the time just before dawn. And the opportunities will eventually arrive, and the longer they wait, the better they are likely to be.