Pipsqueaks #9: OverTrading

What a week this is been; I feel as though I’ve hardly had a moment to myself. My daughter was sick, my wife is sick and had to go to urgent care, my mother poked herself in the eye at 3 o’clock in the morning and had to go to urgent care, my daughter had a swimming show which involved extra practice sessions, and it seemed that I had nary a moment to place a trade. Which is not necessarily a bad thing, as I am inclined to be guilty of something that many of us struggle with from time to time – overtrading.Pipsqueaks 9 OverTrading Slick Trade Online Trading Academy Forex Nadex


For us Forex traders overtrading can mean different things to different people, but basically it is the acquisition of excessive risk, whether one is taking too many trades in the day, or is using excessive leverage, or (in my case) that occasional desire to “teach the market a lesson”. That’s why it’s so important to have a well-defined plan for each trading day (even if that plan is subject to changes, that’s okay, you decide up front what you want to do and then stick to it). For me personally those busy days away from the office work often work out to be a blessing in disguise because, as I’m inclined to go blind staring at charts and agonizing over price movements, it forces some much-needed distance between me and my trading desk. With pending orders and TP’s and SL’s all set, there’s nothing really left for me to do but to LEAVE IT ALONE. Most of the time my interfering with my own trades does not make anything better. Of course that doesn’t stop me from doing it. Make your plan, stick to it and let the wins be wins and let the losses be losses and, I do believe, one will be better off at the end of the day. Granted, I still think it’s the right thing to do if I happen to be looking at my chart and my trade is within a pip or two of TP I will close it manually as I do believe that is the correct thing to do (after having watched too many trades reverse on me a pip or two short of the preset TP).


Let’s look at a few specific types of overtrading scenarios. Let’s start with the scenario of too just many individual trades. This is very likely to affect those among us who are new to the business and inclined to trade without a plan; this is just an invitation to take on too many trades, or to put it another way, to take on too much risk. Many new traders are inclined to believe that more is better in the context of how many trades (or the lot size) they take; however, I strongly believe that in Forex trading less is more. Let me take pause here to comment about something I am fond of doing which is basket trading. I don’t want to confuse basket trading with overtrading inasmuch as basket trading is splitting up a planned amount of risk over several positions with the intention of having win probabilities boost our chance of success, which differs from taking on too many trades at one time which results in carrying too much risk at any one given time, thereby putting too much pressure on the trade outcome. Learn to be very selective with the trades you place, don’t just go for anything that looks like a strategy set up. Chart indicators should have some sort of fundamental backup to them for confirming a set up. Traders need to resist the temptation of jumping at anything that just looks like a set up. Also, correlating pairs can play a role in overtrading as well. It’s terrific when EUR/USD and GBP/USD are moving together in your favor, but it’s a doubly annoying when they’re moving together against you. Just something to remember.


Here’s a scenario that I admit I fall for a lot: spending too much time at the charts. I can tell you from first-hand experience that this will get you into trouble over time in terms of overtrading. Granted, as a new trader you will have to spend a great deal of time learning to read charts, find strategy set ups, etc., but one will become more successful when one will set up his/her positions and then walk away and leave them alone. Just let them do their own thing with minimum interference. Too much time at the charts can cause one to start seeing setups that really aren’t there and grabbing them when they shouldn’t. And yes, overtrading can and indeed does include those instances when you close a poorly performing position moments before it shoots into profit, or closing a profitable position too soon. As I mentioned earlier, less is more. If I learned nothing else from this business I have discovered (the hard way) that watching a chart never made the market perform better. That’s why I am very fond of strategies that involve setting pending orders, as I can just place my orders and walk away and not agonize over what the market is doing. And I have truly found over time that my trades have typically performed better when I just leave them alone. A good example of a pending order strategy is a strangle. For the benefit of those new to Forex trading, a strangle is a type of trade where one places a pending order above and below the spot price with an expectation that the price will move, but the direction of movement is not known. This can be especially interesting for those who like to trade news events, you can place a pending buy stop order above the spot price and a pending sell stop order below the spot price with the expectation of the coming movement in the spot price will trip one pending order of the other. I love to experiment with these. Something I’m currently experimenting with involves placing a strangle trade on the daily chart. Now the daily chart is not something I have a lot of experience with, so if anyone is in tune with this practice or knows of any strategies that are similar I would love to hear from you. Now the details: what I am doing is simply placing a BUY pending order and a SELL pending order, the BUY above and the Sell below the previous day’s candle at the start of the new day (that is, midnight NYT). I’m currently just doing this Tuesday through Thursday (and sometimes Friday) as the week is kind of broken Friday pm through Sunday. I’m just looking at a few dollar pairs at the moment, but what seems to be interesting is that price movement most days seems to only break one direction from the previous day’s candle, and is usually good for more than 20 pips. So if one trades this with a tight SL, breakeven after 10 pips and trail stop or just go for 20 to 30 pips you might find the results interesting. I’m not mentioning this as a strategy, just something interesting to look at for now.


Okay, back on topic. What avoiding overtrading really boils down to is the idea of following that all-important plan. The plan is everything. Sticking to the plan is everything. I really love days when I make my daily goal in the first hour of the day (which for me lately happens a lot) because I can turn the computer off and have more opportunities for my seven-year-old to whip me at go fish. Or Blackjack. Or Uno…


In closing let me ask: do you have or are you working with a well-defined trading plan? If not, consider the benefits of a Sapphire membership in slick trade – lots of training materials, strategies, member support, strategies, expert advisors, and did I mention strategies? Check it out – I’m sure you’ll be glad you did.


That’s all for today, have a great week in the room and, as always, thanks for reading.


If you someday find yourself across a poker table from this smiling face you’d better run before you lose all your money.

johns daughter forex



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