Good day forex trading koalas.
Welcome to another article on Forex Mistakes under the Koala’s Learn Forex Trading Training College.
These mistakes are the ones that can cost you your forex trading accounts. Yes. A margin call.
Do you feel the urge to be always in a trade? Are you very worried that the longer you stay out on the sidelines, the more likely you are going to miss the next 100 pips move?
If your answer is yes, you may be over trading.
Over trading is a non productive trading style. Most seasoned traders tend to agree that under normal circumstances, the forex market usually range about 70% – 80% of the time. This means that if you are always trading, you are probably either
- trying to pick tops and bottoms excessively ( which is also a non productive trading style ) OR
- trading the market with not much of a clue
The forex market can range due to many reasons such as
- hesitation / apprehension before a major economic event
- low market volume
- similar level of demands for both currencies
and many more!
Looking at the chart above, let’s explore the dangers of over trading. Tom from the article ” The Story of a Margin Call ” simply loves to trade non stop!
- Tom sees the red candle develops and decides it is a good opportunity to sell. Unfortunately the currency pair goes against him within minutes.
- Tom’s position hits stop loss and seeing the “bullish” momentum ( which in reality is just a usual market volatility spike ) , he decides to buy to recover his loss. Once again currency pair turns against him within minutes.
- Tom’s position hits stop loss again and the currency pair has since slide a fair bit. This time the bears must be coming out on full force. Sell!
- Tom’s position hits stop loss and he wonders if he should buy as the currency pair looks likely to test the previous high. ( which is just his wishful thinking in reality )
Dear forex trading koalas, had Tom just stopped to observe the market for sometime, he would have noticed that the market was in a tight range and hence excessively trading would have been disastrous. Knowing the market condition prior to trading is crucial!
I hope this article on Over Trading highlighted to you that in certain situations, being on the sidelines of the market may be a wise decision.
“If you missed a great opportunity due to being cautious, you can always wait for the next great opportunity. If you get yourself stuck in a bad trade due to over trading, you can only wish that you hadn’t done so in the first place.”