Have you been like one of them who just couldn’t stop making trades, even when things weren’t going well? If you do, it’s high time that you realized it’s called overtrading. And it’s an absolute trap which many traders fall into.
Yeah, sometimes it starts with a promising day, but soon you find yourself glued to the screen, making trade after trade and trade after trade, even if you are losing money! Sounds like an addiction, right? Yes!
That’s exactly what it is like. This frantic pace leads to constantly changing your mind and making more losses than gains, without you actually noticing it and before you could realize it and take necessary actions, boom you’re into severe loss!
How Do You Avoid Falling into This Pit?
There are some tips from experts that you might need to set your eyes on.
Also, why do you need to stop overtrading though? Remember, overtrading happens when you keep trading without a clear & concise plan, driven by emotions like fear/boredom or greed. This risky behavior makes you feel frustrated and stuck in a cycle of bad decisions that leads to poor results.
When you look back, it’s gonna be obvious that overtrading has taken over, causing severe loss. And that is why you must break the cycle.
What Exactly is Over-Trading?
Overtrading can be described as a situation where an individual engages in excessive trading activities, and it can be a big problem, like buying and selling way too much stuff. It might seem like just a lot of trading, but really it’s about losing control.
Everyone has a different point where trading becomes risky. For some, it’s around 50 trades, while others can handle 200. The key to this is finding your own “too much” number.
What Leads to Overtrading Among Traders?
Traders may make random decisions for a number of reasons including when they feel that they are likely to miss out on the profits that are generated by the market or perhaps due to boredom.
This can lead to overtrading which is a common predicament, that means making trades more often than necessary.
Overtrading has the potential to negatively affect a trader, because it is like going in circles (the never ending circle of profits & losses) rather than in the right track as far as the movement is concerned.
Note: Risks Associated with Excessive Trading
There are different risks that arise from excessive trading which affect one’s ability, mental state and financial stability.
It entails putting up silly offers, spending a lot of money on commissions, getting distracted, and the risks spiralling up due to continuing losses, which puts the trader on the edge of the wall.
In periods of high risk, traders tend to take even higher risk to attain more probability of gaining.
The most critical risk of trading is that one can end up losing their trading account completely due to these continual losses! So, while engaging in forex the following are seven tips that can be considered to avoid overtrading:
Spotting Overtrading is the Foremost Step
Overtrading is like making too many trades without a clear plan. While the exact number can vary, you might be overtrading if you feel like you’re out of control and just making decisions on the fly. The key is to recognize it and stop yourself.
Trading Plan for Success
Try having a checklist before each trade. This plan would include things like what to look for (patterns, triggers), how much to buy, and when to get in and out (buy/sell points). By having this plan, you can avoid impulsive trades and only act on good opportunities.
Let Good Trades Find You
Don’t rush into trades because you’re scared of missing out. This can lead to frustration and burning through your money with lots of small losses.
Be patient and wait for a clear opportunity that lines up with your trading plan (like that checklist we talked about earlier). Instead of picking just one stock, follow a few in the same area.
This way, if one isn’t the best fit, you might find a better opportunity with another.
Remember your plan and triggers you identified. If the trade doesn’t happen right away, that’s okay! Be patient and wait for the right moment.
Stay Calm and Collected
Don’t let your feelings cloud your judgment! Greed might make you buy something or hold onto a losing trade too long. Anger or revenge can make you trade to “get back” at the market, even if it’s a bad idea.
Fear of missing out (FOMO – and no, it is not just a GenZ term, it is so real when it comes to trading!) can come from watching too much news or listening to people who hype up certain stocks.
Basically, avoid trading based on emotions. Stick to your plan and make choices with a clear head, and you’ll be all set!
Don’t Fall for FOMO
Fear of missing out (FOMO) can trick you into chasing trades that don’t fit your plan. You might buy too high or hold onto losers too long because you think everyone else is getting rich. This can lead to more stress, missed opportunities to get out of bad trades, and ultimately, more trading than you planned.
To avoid FOMO, cut back on financial news, social media, and anything else that hypes up the market. Take a break from the constant updates and focus on your plan.
Cash is Your Friend
Do not feel compelled to always be active just because you have cash at hand, especially if it is not favorable for you at the moment. It’s never a waste to have cash in readiness because this could be seen as an opportunity, or better still, a safety measure!
They enable you to temporarily withdraw from the market and not overtrade waiting for favorable conditions. So, the best approach to trading will depend on how you use cash as your armour in this trading game.
It might not necessarily make you money, but it can save you from losses and it also gives you a second chance for better opportunities to trade. So, you better treat it like a friend!
Take a Break When Needed
Feeling the urge to overtrade? Take a break! Disconnect from financial news, social media, and anything market-related. Sit on cash for a while, a few hours, a day, or even a week.
This will help you clear your head, recharge your focus, and make better trading decisions later. It’s a tough skill to learn, but an Important one for any trader.
Learn When to Step Away!
Before everything else, it is necessary for you to understand that people have individual attitudes to risk. Consider how much risk you are willing to take before trading, it is an important decision.
It’s also important to know that when participating in day trading, you may end up loosing all your money! Well, it is just a probability, but you might! So, day trading using borrowed funds like short selling or margin buying- is very dangerous and can lead to a sorry state, where the trader ends up owing money to his broker!
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Frequently Asked Questions
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