Most forex newbies often think that taking more trades leads to catching more profits.
The more setups you take, the better your chances of winning, right?
This isn’t the lottery, y’all!
Overtrading refers to taking so many trade setups to the extent that you lose your market edge.
One of my favorite trading psychologists, Dr. Brett Steenbarger, explains that the root of overtrading is the mismatch between one’s profit expectations and market volatility.
In other words, traders often feel the need to catch multiple market moves in order to hit their goals.
While it’s helpful to set trading goals, there’s one major problem with this line of thinking.The market does not move based on your expectations!
This kind of mindset may lead a trader to overestimate his trading skills in an effort to reach his targets and mentally convince himself that he’s had a good trading day.
While this may work in some cases, it can wind up being harmful to your trading psychology when it makes you feel invincible and overconfident that you can trade in absolutely any market environment.
If you often catch yourself in this situation, don’t beat yourself up! It’s much more common than you think, and it happens even to seasoned traders.You see, most of us have been conditioned to think that we must work harder and do more in order to achieve better 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 the best (a.k.a. high probability) trade setups.
This could involve waiting patiently or sitting on the sidelines if you have to. Doing nothing and refraining to take a trade when it’s not aligned with your strategy is a trading decision in itself.
Of course this is much easier said than done, so here’s one simple trick that can help you avoid overtrading:
Take only ONE TRADE each day.
That’s right, no exceptions. If you catch a big win, you’re done for the day. If you snag a loss, you’re done for the day.Day trading coach and author Galen Woods calls this the One Bullet Action Plan.
Setting this absolute one-trade rule forces you to think like you have just one bullet left, which means that you have to aim properly and pull the trigger at the right time in order to make the most out of your only shot.
It sounds so simple, but it requires a lot of work.
You have to comb through the charts and all the available setups to see which ones line up with your strategy, so this addresses the psychological need to “do more.”
You must be extra picky in filtering out the “best” one for the day and at the same time be alert in catching the move.
Keep the wisdom of the great American philosopher Eminem in mind: “You only have one shot, do not miss your chance.”
What about undertrading?
Don’t worry about that just yet. Far more traders wipe out their accounts from overtrading than undertrading.
Once you are able to easily avoid overtrading, you’ll be able to fine-tune your market edge.
From there, sticking to high-probability setups will be like second nature to you, helping you stay consistently profitable in the long run.