Over Trading Is A Forex Trader’s Biggest Mistake

Over-trading is perhaps the most prevalent trading mistake that Forex traders make. This article will fully explore over-trading and provide some solid tips to help you overcome this extremely destructive emotional trading problem.

• Are you over-trading?

If you don’t know if you are over-trading you probably are. In fact, most traders who are not making money consistently in the markets are over-trading, whether they realize it or not. The problem with over-trading is that it can be difficult for the trader to know if they are doing it or not because it has many different ways of “sneaking” up on you without you realizing it.

For example, if you have committed to learning and mastering the daily charts first, do you still find yourself going and looking at the lower time frames more than you are looking at the daily charts? This is a very easy way to start over-trading. Traders who have not yet mastered price action trading on the daily charts are very likely to over-trade if they focus on the lower time frames instead. This is because lower time frames tend to be riddled with lower-probability trade setups that often tempt traders to take positions that they would not have otherwise taken had they been focused on the daily charts.

Another example; do you enter into additional trades just because your current trade is in profit and you’ve moved to breakeven? Was the additional trade setup REALLY valid or did you jump the gun because you were feeling excited about your first profitable position?

stop over-trading

There are many other situations in addition to the two discussed above that constitute over-trading. The main problem is that many traders are simply unaware that they are over-trading when they are in the moment. It is very easy to become fixated on a less-than-perfect trade setup and forget about your trading plan and not be consciously aware of whether or not you are over-trading.

Due to the fact that the emotion-inducing situations that occur in the market can sometimes be hard to detect and sometimes even over-whelming, we have to combat this enemy by planning out our trading plan and trading strategies while we are away from the market and not in any trades…

• The best way to stop over-trading is before you start…

As we just discussed above; because it can be difficult to realize you are over-trading when you are “in the moment” of trading, it is best to simply go on the offensive against over-trading by planning your trading strategy and trading plan in advance.

We can think of trading as a sort of war. The war basically boils down to your logical or objective brain mechanisms vs. your “fight or flight” or emotional brain mechanisms. It is extremely difficult to over-ride thousands of years of human-brain evolution…especially “in the moment”. The best way to win this war is to make a comprehensive forex trading plan, and stick to it…passionately.

I would bet money on the fact that if you are reading this right now, and you do not have a tangible and practical Forex trading plan, you are probably over-trading. It is absolutely essential to create a Forex trading plan and follow it if you want to get on and stay on the right trading path. All traders must do this in the beginning to develop the proper trading habits of logical and objective trading rather than emotional trading. Trading the markets naturally induces emotion and emotional trading…so if you don’t purposely make a plan to counter this reality, you are almost certain to over-trade.

• Trading like a sniper…

In a recent article I discussed the importance of learning to trade like a sniper. This concept is very important to overcoming your problem with over-trading. If you are over-trading you are definitely not trading like a sniper, instead you are trading like a machine gunner by “shooting” at many more trades than you should…or by simply shooting at anything that you “feel” is a trade setup.

Not having mastered a proven and effective trading strategy like price action will also induce over-trading. Simply put…we want to trade like a sniper and not a machine gunner, and if you don’t know what your trading strategy is…and / or have not fully mastered it…there is no way you can trade with a high enough rate of skill to pick your trades like sniper. Basically, if you don’t know exactly what you are looking for in the market you will end up over-trading / shooting at every little thing that looks like a trade.

If you’ve been following the recent Forex market activity you are surely aware that the EURUSD has been consolidating recently, actually for about 2 months now it’s been in a trading range. I find that traders often over-trade in these types of consolidating markets because they lose patience or they simply do not know how to filter out the lower-probability trades in favor of the best price action trade setups.

Let’s take a look at the recent daily chart of the EURUSD and analyze the difference between over-trading and trading like a sniper…

(See the explanations corresponding to each number below the chart)


1. At point one we can see two inside bars formed off support through 1.4050-1.4000. This setup was valid because the support level had already been tested recently on two previous occasions, and the setup thus provided us with an obvious inside bar strategy from a confluent level and a good risk reward scenario.

2. At point two we can see a bullish pin bar setup that formed off the 1.4050-1.4000 support area mentioned above. This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward.

3. At point three we can see a bearish pin bar strategy that had good formation / definition and appeared to be in-line with the recent downward thrust. Now, the difference here is that the risk reward scenario was very poor since you would have been shorting right into the previously established significant support level near 1.4050-1.4000. A trader who is patient and skilled, and with a trading plan, very likely would have not traded this setup due to the fact that it required them to sell into a significant core support level.

4. At point four we can see another bullish pin bar setup that formed off the 1.4050-1.4000 support area. This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward.

5. At point five we can see two pin bars that formed. These two pin bars had proper form…but this is a good example of the fact that a price bar formation is not really a price action setup unless it has some factors of confluence behind it. These pin bars were just “hanging” in the middle of nowhere with no supporting factors behind them; they weren’t off any core support level and resistance was pretty close overhead, limiting the risk reward potential. This was a setup that the skilled and patient price action trader very likely would have passed on.

• Over-exposure…

Another way many traders end up over-trading is by over-exposure to correlated Forex currency pairs. For example, trading the EURUSD and the GBPUSD is essentially like taking two nearly identical positions since the pairs are very correlated and move in a similar manner. So, you have to be aware of this and make sure you aren’t doubling-up your position. Even if there are two valid and high-quality setups in both pairs, you would not take both, you would use your discretionary price action trading skills to pick the better of the two setups and stick with that one.

This point of over-trading by trading too many currency pairs at one time also brings up the point that over-trading is basically the same as over-leveraging your trading account. Some traders get lulled into thinking by taking multiple positions they are diversifying or spreading their risk out, but in fact most of the time they are just adding risk by taking a larger position spread out among multiple pairs. You should view over-trading as two emotional trading errors in one; over-trading AND over-leveraging, because by over-trading you are also risking too much money.

• Less IS More…

If you really want to stop over-trading you are going to have to realize that less is more in forex. Unfortunately, many Fx traders come into the market with the opposite attitude; more is better. Aspiring traders tend to think that more trading is better, more indicators are better, more analysis is better, more hours in front of the computer is better, etc. However, this is definitely NOT the case and you need to understand this if you want to stop over-trading…

Spending too much time in front of your charts induces over-trading because you will over-analyze the nearly limitless amount of market-related variables out there and end up “manifesting” signals that aren’t actually there. Learn to “set and forget” and trade end-of-day strategies, if you can do this you will greatly reduce your chances of becoming a chronic over-trader. Remember, over-analyzing leads to over-trading.

Obviously, in the beginning of your trading career you’ll need to spend more time with the markets because you’ll need to learn and master your strategy, but once this is done there really is no point in sitting in front of your computer for hours trying to “figure out” what is going to happen….because you can’t “figure it out”, all you can do is master your forex strategy, develop a plan and routine around it, and follow it with discipline.

Also, many traders try trading 15 different trading patterns or setups or who knows what else. My price action strategies are effective yet concise; my setups condense many redundant candlestick patterns into a handful of powerful price action strategies that are easy to learn and to trade. If you look at any candlestick book you will soon realize many of the patterns are very similar and this tends to confuse traders, I have eliminated this problem with the way I teach price action. It helps to eliminate trade frequency / over-trading by focusing your attention to a more refined set of trading strategies, instead of spreading your focus out over too wide a spectrum.

• You can control yourself, not the market…

Simply put; over-traders are trying to control the market…you need to honestly stop and ask yourself if you think you feel like you are trying to control the market. Once you realize and fully ACCEPT that you really have NO control over the market, you will begin to think differently because you will realize you have to master a trading edge…and then you have to only trade when the market shows you your edge.