Signs You May Be Overtrading

As a recovering over-trader, I’m more than a little familiar with how easy it is to jump compulsively into a trade without regard for your strategy or for the consequences, which can often be costly. I recall one night I found myself up at 2:30 am while the EUR/USD market bounced up and down and I kept trying to bounce with it, except I was always too late, and I kept thinking the next trade was the one that would finally get me out of the hole. That was a very expensive night, and I don’t remember sleeping much after finally heading to bed after 3:00. But even the worst nights have a morning, and so did this one: that one bad night of over-trading was the turning point that led me to begin developing a rigorous, tested, disciplined (usually), quantitative FX trading strategy.

Since I still periodically feel the urge to begin trading anytime I glance at a forex chart, I thought I’d share some warning signs that you might need to cut back your trading and think about a more strategic approach to the markets. Trust me, this is as much for my benefit as yours – I’m going to keep this list onscreen right beside my charting software.

1. If one chart indicator doesn’t have a clear trading signal, you switch indicators until you find one that does (or looks like it does). What you’re really doing in this situation is trying to find a signal that you can read enough into to justify placing a trade. The fact is, there are times when there just aren’t any good trades to be had and you should be sitting on the sidelines. If you can’t accept that, you’ll end up making lots of trades you shouldn’t.

2. You feel the urgent need to place a trade within five minutes of opening a forex chart. Just looking at the chart makes you feel you absolutely must be trading right now, and anytime you open a chart you spot some trend or indicator that you should be taking advantage of. You’re a bit like the person who needs to place a bet anytime they walk by a roulette table.

3. When you’re away from your forex trading platform, you feel like you’re constantly missing trades. You feel intense frustration and disappointment when you see a trade you could’ve made but didn’t. You spend a lot of time thinking about those trades you missed. Sometimes you wish you could stay awake 24 hours a day because then you wouldn’t miss out on all those trades.

4. You have a trading system but you constantly make exceptions to it. You have an ever-growing list of excuses and rationalizations for why you trade outside your system:

You’ll only do it once (until next time)

You’re not risking very much

The chart is showing the perfect trade set-up and you’ll miss out on huge profits

Look how active the market it right now! I have to trade since everyone else is.

I’m trying out this new experimental strategy (well, then try it out on a demo system)

This trade is actually part of my system, since I keep extending my system to include all my trades

My system hasn’t been working lately anyway

It’ll take my system at least a year to make me rich and I want to be rich next week

5. 5.You’re focused on “the one big trade” that will make up all your losses, and you’re willing to make dozens of ill-advised trades just to make sure you don’t miss that big one. And guess what, you discover no one trade is going to make up for all you’ve lost in bad trades and spread costs. At this point you might as well be buying lottery tickets.

6. You think that trading more often will make you more money. “If I can make this many trades with the 5-minute chart, imagine how many I can make with the 1-minute chart!”

My experience has been the opposite.

7. You think that anticipation, anxiety, impatience, urgency, late nights, a pounding pulse, and the rush of adrenaline are all part of trading and there’s no way to trade without them. You’re under the impression that you’re more likely to trade well under these conditions.

8. You make trades so you can tell people about them. “Yeah, I traded the zloty at 3:00 am last night – pretty crazy, eh?” Yes, you’re a brilliant, maverick currency trader, and you’ll be broke in a month.

9. You have a “gut instinct” for trades that makes different, contradictory predictions every time it kicks in.

10. You can always find a way that your trade could have gone well, if you’d only done X, Y, and/or Z, and you resolve to do all of those next time. In fact, just to prove how well they’ll work, you’re going to trade again right now.

11. You cut short your weekend so you can trade on Sunday evening when the Asian markets are open. In fact, you find the whole weekend concept very inconvenient since you’d much rather be trading on Saturdays.

12. You have a history of being addicted to things and forex is the latest. This is no joke – there’s a very real high to be gotten from trading, akin to the high from gambling or other addictive activities, and if you’re especially sensitive or vulnerable to that type of response, you should be very careful about venturing into the currency markets. This is related to #7 above – many of the reactions I listed there are part of a potentially addictive physiological response, particularly for those with a predisposition in that direction.

I’m still learning forex… it’s a never ending process.