A standard mistake that traders make is attempting to tackle too many positions without delay.
They consider that the next variety of positions will translate into higher profit. “If I open positions in multiple pairs, one in all them will win big.”
The more setups you’re taking, the higher your possibilities of winning, right?
WRONG!
This isn’t the lottery, y’all!
If you must maximize your opportunities and skills, it is advisable to take into consideration being pickier together with your trades.
For one thing, opening too many positions dilutes your capital allocation.
If you’ve done your research and are confident about where the value goes, wouldn’t you must put as much as you’ll be able to risk on the trade?
Don’t undercapitalize a 20% move simply because you wanted in on a preferred asset that may only grow by 10% in the identical time period.
Overtrading refers to taking so many trade setups to the extent that you simply lose your market edge. That’s since you’re spending less time and research on each position.
As a substitute of skimming charts and tweets on eight assets, you can do multiple chart analyses, backtests, and discuss with informed sources about where three asset prices could go.
The more information you will have and the more scenarios you’ve prepared for, the less likely you might be to miss opportunities and make emotional decisions.
Having plenty of open trades also weakens your focus.
Unless you’re a robot, you’ll be able to realistically give attention to only a small variety of opportunities. Preparing for various market scenarios won’t do a thing in your account if you happen to’re not around to execute the trading plan once they do occur.
Certainly one of my favorite trading psychologists, Dr. Brett Steenbarger, explains that the basis of overtrading is the mismatch between one’s profit expectations and market volatility.
In other words, traders often feel the necessity to catch multiple market moves as a way to hit their goals.
This sort of mindset may lead a trader to overestimate his trading skills in an effort to achieve his targets and mentally persuade himself that he’s had a great trading day.
You see, most of us have been conditioned to think that we must work harder and do more as a way to achieve higher results. While clocking in your 10,000 hours of deliberate practice has its merits, it’s a misconception to think that working harder equates to taking more trades.
Working hard means taking one of the best (a.k.a. high probability) trade setups.
In fact, this is far easier said than done, so here’s one easy trick that may make it easier to avoid overtrading:
Take only ONE TRADE every day.
That’s right, no exceptions. When you catch a giant win, you’re done for the day. When you snag a loss, you’re done for the day.
Day trading coach and writer Galen Woods calls this the One Bullet Motion Plan.
Setting this absolute one-trade rule forces you to think like you will have only one bullet left, which suggests that you will have to aim properly and pull the trigger at the precise time as a way to make essentially the most out of your only shot.
You have to be extra picky in filtering out the “best” one for the day and at the identical time be alert in catching the move.
At the tip of the day, it’s our job as traders to get the utmost yield for the capital that we now have.
While being picky with trades won’t guarantee consistent profits, it will probably definitely minimize losses and hopefully keep you within the forex game long enough to be consistently profitable.