Chapter 4: Stop over-trading if you want to make more money in Forex.

Stop over-trading if you want to make more money in Forex.

If you really want to make some stress-free and consistent money in the forex market there was one quick tip for accomplishing this very elusive feat; TRADE LESS. Yes, that’s right, for all you newbie traders reading this it might seem a little counter intuitive to think that you could possibly make more money by reducing the number of trades you enter per week or per month. But, statistics prove that traders who take longer-term positions in the market and enter fewer transactions each year typically make more money than day traders or traders who perhaps jump in and out of the market numerous times each week.

This is not to say that you shouldn’t take advantage of lucrative market conditions, such as strongly trending markets or volatile price movement. But most traders make the mistake of trading at about the same rate when conditions are not very conducive to strong price movements. By doing this they end up jumping in and out of the market multiple times per week, incurring transaction costs and perhaps many small losses. And while small losses are always better than big losses, it is also true that NO losses are always better than small losses.

Over trading is typically a result of trading based on emotional impulses or feelings. What happens is that traders want “revenge” at the market after a losing trader or a series of losers, so they then jump right back into the market to try and make back the money they just lost. This almost never works and almost always results in a much bigger loss than if you had just walked away and accepted the first loss. The second emotional over trading mistake that traders often commit, is jumping right back into the market after a big winner or a series of winners. Many traders do this because they feel euphoric about the money they just made in the markets and they feel over-confident, or like they somehow have a degree of control over the market just because their most recent trade(s) worked out nicely. This behavior also almost always results in lost money and a large reduction of your recent winnings, which can of course induce even more emotional trading mistakes.

The best way to not fall into this emotional cycle of over-trading is to realize that you aren’t going to get rich quick in the markets. If you have one solid trade a week where you double or triple your risk, than you should view that as a profitable week and not try to force a trade that isn’t there. However, as stated earlier, sometimes market conditions will be conducive to trading multiple times a week, it takes a bit of screen time and experience to recognize such trading conditions, but after you do it is by no means a mistake to enter multiple trades a week if conditions are providing multiple solid trading signals. It is when traders begin to manifest or force trade setups that aren’t actually there, out of greed, that they get themselves into trouble.

Chapter 5: Learn from your forex mistakes by developing a forex trading plan.