Is Frequent Trading Good or Bad?
Trading is an activity that can take more or less time, depending on each forex trader's approach. Trading, as you may know, is simply buying and selling an asset.
So, what are the pros and cons of doing it frequently?
This discussion is as old as trading itself, as there are many ways to think about this debate.
We’ll always encourage a responsible trading approach based on strategy more than merely trying to trade all the time.
Let's see the reasons behind this approach.
➡️ The Risks of Overtrading
Overtrading refers to the excessive buying and selling of currencies by a Forex trader.
Overtrading can occur for many reasons but generally have the same result: poor performance of the trade results and increased broker fees.
Retail traders usually overtrade when they experience a significant loss or several smaller losses in a long losing streak.
They do this to try to regain their capital or seek “revenge” on the market. However, this is not a smart thing to do and can lead to blowing up an account.
A common thing that happens is that traders new to technical indicators often use them as justification for making a trade.
They have already decided what position to take and then look for indicators that will back up their decision, allowing them to feel more comfortable.
The process should be inverted. First, you analyze properly, and then you make a decision. Not the other way around.
Another common problem of constant trading is creating an environment that can lead to addiction. Forex trading is not a game but a professional endeavor based on data.
➡️ How to Prevent Overtrading
To avoid losing money because of frequent trading, follow our advice.
1. Take a break: Overtrading may be caused by investors feeling as though they have to make a trade. You are not forced to invest and rebalance your portfolio all the time. Let your position do its job. Especially those for the long run.
2. Create rules: Adding rules to enter a trade can prevent investors from placing orders that deviate from their trading plan. You should read articles on creating a trading plan.
3. Exercise self-awareness: Investors aware that they may be overtrading can take action to prevent it from occurring. Ensure you are not gambling but trading based on sound analysis and well-informed trade decisions.
4. Sound Risk Management: In a previous article, we talked a lot about risk management. Risk management is the ability to have the correct lot size and the number of active trading positions at any time, especially with regard to your Account balance.
We must ensure to avoid taking more risks than we can afford.
In conclusion, over-trading is an impulsive, emotional reaction that makes traders trade very, too often, unnecessarily, leading to notable account losses.
We recommend that Forex traders should always ensure to maintain their trading psychology as the most important edge for their trading success. Added to that is the continuous learning process of trading along with a progressive community of Traders.
Do you think overtrading is bad for Forex Traders? Let me know your answer in the comment section below.
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