Recognize the Dangers of Overtrading Before It’s Too Late
Overtrading – Some traders assume that the more often they open positions the greater the chance of getting profit. Is that true?
There is nothing wrong with the statement that traders consider profits to be greater when they often open positions. But do you know? Not a few traders who actually lose because the burden of trading costs will increase.
Too often trading or also called overtrading will usually be caused by greed and the desire of traders to take revenge. When looking at profitable price movements, greedy traders often continue to open positions with the aim of increasing the size of the trading and get the maximum profit. On the other hand, traders also often want to make a fever reply which causes them to overtrade. His intention will usually start from the previous defeat.
Here are the dangers of trading too often:
When you open a position, then you have exposed capital as collateral to be able to get profit on the forex market. However, the possibility for each trading position that is still ongoing can get a problem from the accumulation of positive points or even a loss due to the accumulation of minus points.
For example, trader A opens 5 trading positions on several major pairs every day.Each position only allows it to run without a stop loss at all. It is assumed that the capital spent is USD 1,000 on a mini account, then a win rate of 60% with a maximum leverage of 1: 200.
If you see the win rate, trader A should be able to make a profit. However, it turns out he actually suffered a loss for 1 consecutive week. How come? The following is an illustration of the calculation:
- The number of positions closed is 25 positions because trader A does not trade on Saturdays and Sundays.
- The number of profit positions is 15 positions taken from 60% of the number of positions closed.
- The number of positions lost is 10 positions taken from 40% of the number of positions closed.
- The average profit per position is 10 pips, so the gross profit is 150 pips.
- Because trader A never puts a stop loss, the average loss for each open position is 20 pips. So that the gross profit reaches 200 pips.
From the calculations that have been made, trader A is declared to have suffered losses of up to 50 pips or approximately USD 50, it has not yet entered the burden of the trading costs incurred. It can be concluded that the greater the number of open positions, the greater the risk of trading. So that often opening positions cannot guarantee whether the trader can get a large or consistent profit even though the win rate is quite high.
When you often do food trading psychology will also be greatly affected. You can become anxious often because you have too much hope to get profit in a very short time. So that slowly and unconsciously, the time you do for trading is mostly just spent on arranging charts and also checking positions compulsively.
If a beginner trader does this, it is not impossible that they will be confused, because in fact only 1 position sometimes still makes beginners upset when prices move around the forecast. So you can imagine the effect if there are many positions running at the same time, they might be very stressful.
Should you avoid danger or risk of overtrading? Of course, you must avoid the risk of overtrading if your ability is not able to handle the risks mentioned earlier.Here are tips for you to prevent overtrading.
1. Arrange a plan and discipline
Having a trading plan is one of the first tricks or strategies you can do to keep away from overtrading. In fact, overtrading cases are often caused by exclusive actions that are often carried out by traders who have no plans.
However, it is not impossible that those who already have a trading plan are not necessarily safe, because there is still a possibility that the trader will deviate from his plan. That is why having a trading plan is not enough to avoid the risk of overtrading. There must be discipline and a strong commitment to be able to properly implement all the plans.
2. Be realistic
In order to avoid overtrading caused by wanting revenge, you should start thinking about being realistic. Never reject potential loss, accept with anticipation of the possibility.
Forex trading activity is not something you can predict with certainty. Where there will be opportunities for success there is also the potential for failure. Winning or losing, profit or loss is a natural thing you pass through in forex trading. It is actually very unrealistic if you actually hope you will always win and get a profit, because the fact that a professional must have lost. So it is very important for you to be able to utilize risk management so that it can help minimize the chances of loss.
3. Train patience
Opportunities in the forex market will be created well when prices rise and also fall, this is considered effective to be able to provoke enthusiasm, but what you need to know that not all opportunities have the potential that needs to be maximized.
For example, the trading market has potential with greater profits than sideways.On the other hand, ranging markets can be even more utilized than choppy conditions that are very difficult to predict. You can learn to recognize and choose the best opportunities for trading.
So the principle is that the better the quality of an opportunity, the less frequent the appearance. This of course will be in line with the main ideas of technical analysts who have proven the truth, through the use of indicators on time frame trading. You also have to worry, if it turns out you miss an opportunity because the price moves in a repetitive pattern.
Having a desire to always get profit is not a problem. However, if you don’t do it the right way, instead you get your profit but instead you will get a substantial loss.