Overtrade To Scratch Your Chance Of Success

Posted in: Basic Trading Strategies, Currency Trading, Trading Article

overtrading forex accountThere are many draws to trading the currency markets which has made it the most marketed trading vehicle for trading systems.

As a retail trader, you can get started with an initial deposit so low that is unheard of in any other markets.

Add in the 24-hour nature of the market and the vast combination of currency pairings, it draws in people from all backgrounds, experience and expectation levels.

With visions of fortunes dancing in their heads, people open an account and for some, they are trading within days of depositing the required sum.

Some hard facts are out there and the most important, for me, is the number of people that actually succeed.


The Path To Trading Ruin

There are so many reasons why the majority fail at trading and you may find yourself guilty of some of them.

Many people use the EA (expert advisor) method to reach their expectation of riches.

There are the signal services that may or may not have a track record but don’t “teach you how to fish”.

There are bogus strategies marketed that contain “the secret code released from a profitable hedge fund manager”.

People use the professional forum posters for tips and strategies without asking if they can back up their trading claims.

Even with good intentions, some just are not cut out for trading even though they have a proven trading method in front of them.

I don’t want to discuss what I have mentioned. Although they are serious, there is one that will devour even the most conscientious trader.

I want to discuss what I like to call the silent killer because often times before you realize you’re guilty of it, the damage has already been done.


Don’t Overtrade To Increase Profits

Guaranteed that since the first day you found out about the spot Forex trading opportunity, you were greeted with how great a 24 hour market was. You could find trading opportunities anytime of the day.

You saw the potential that was offered to you through the various sessions and through clever Forex marketing.

You nailed down a strategy, risk profile and bounced off to day trade your account.

You decided that your $2000.00 account at 2% risk allowed you an actual dollar risk per trade of $40.00. Your strategy averaged about 20 pips per trade risk so you could trade about $2 per pip or 2 mini lots.


This is where the problem starts.


You wanted to average $500 per week so you needed to net (after trade costs and minus the losing trades) about 250 pips or 50 pips a day.

You traded the London session but it was full of news spikes and you had a tough time getting anything going.

“No problem”, you said, as you knew you were about to head into the overlap session.

The US trading session opens and along with the London session still active, you wanted to harness that power to see if you can bag a winner or two.

Later that night with the kids tucked into bed, you could tackle the Asian session.

After all, with only $2/pip, you needed to average 50 pips to make any “real money”. Spread costs are putting you in the hole about $4 as soon as you enter a trade….win or lose.

Suddenly, this freedom from a J.O.B. has become a chain linking you to your desk as you begin to overtrade and churn your account.


Why did this happen?


After being bombarded with thousand dollar claims, making $40 on a trade seems like nothing – actually, $38 because the broker needs to get paid. With your small account, you actually need to trade more often to have a real shot at making the big money.

Or, so you tell yourself because you equate more trades with more wins which equals more money.

The entire trading world has seen some crazy moves in the currency markets over the years and that is something you want to take advantage of.

Remember though that those who look at a more macro view understand that there is more to trading than moves on a chart.

Even with these wild events, you still must stick to a trade plan and preferably the plan that came with your trading system that has a positive expectancy.

It is far too easy to deviate from that plan and overtrade when you see these huge moves. There is always money to be made trading but you must be around to take some of it.


Compounding is key to accumulation

Starting with a smaller account and weathering the string of losses that always come, you are not allowing that “magic of compounding” to work.

I appreciate that the slow grind to the top is not fun nor is it pretty.

These people get frustrated with the lack of progress (even if they are further ahead than they started) and start doubling up, grabbing trades outside of their plan, not abiding by their stop since they market “will come back”.

Instead of patience and slow growth, they toss a mathematically proven formula aside for the next winner.

Nope, the progress is too slow for them.

In the end, they short-circuit the process that has allowed many people to increase their account size, increase their position size and finally reap the benefits of larger dollar amount winners.


Trading Size Matters

One turning point for this trader was when each pip actually meant something. I found that a smaller account was like using training wheels to ride a bike. A fall here or there never hurt…except maybe a few bruises (on the ego).

The problem was, a $20 loss was no big deal.

Getting sloppy, even after a run of solid trading habit performance, would happen. It wasn’t until I pulled back and said to myself “treat this as if it were the only trading stake you will ever have”, that things changed.

In my mind, each pip was greater value than what the account stated.

I even went as far to write an “investors report” at the end of each week. Even though I was the only one with money in the account, it was an exercise in learning to be a professional.

When you actually write a review of yourself and account performance, it forces you to be critical. It forces you to face issues that could seriously destroy your trading career especially if you have been overtrading.

See, it wasn’t an actual increase in pip worth but the perceived value of each pip. Each pip was a learning experience. A lesson. Each pip taken from the market with a professional mindset was worth more than any actual worth.

The opposite was the same as well.

You may say this is too simplistic.

Maybe so.

Does it work?

It worked for me and many others I have suggested the above to. At the end of the road, lies the opportunity to have a position size that allows a greater payoff for fewer pips. Believe me when I say that before you increase your account size through deposits, increase it in your mind first.

You do not want to be at the beginnings of a learning experience when each pip is worth between $10-30.


Benefits Of Large Position Sizing

You will be shocked of how freeing it is to not only have 30 pips make you what takes people a week to make, but to do it with less time at the screen. The great thing is that greater size does not equate to greater stress.

It’s just the opposite really.

There is less stress knowing that you don’t have to peak at the market every hour to see if a setup is there.

Less stress knowing you only need that one nice bounce to end your day.

Your level of patience increases because you don’t have to perform…jump into every trade.

Overtrading has ruined many a trader trying to make a living in the markets. If you start off properly, overtrading will not be your downfall. Perceive a higher pip value with a professional approach and you stand a greater chance of actually getting the higher value.

Believe me, there are a host of other issues that are harder to rectify than this simple problem of overtrading.

Overtrading won’t make you rich…but your broker will love you.

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