Are You Over Trading?

Traders . . . Take a look back at the pairs on your platform and markets you trade. Get a sense of the average amount of signals you get per week – especially the rock solid ones that rigidly meet your rules for entry requirements and have additional confirmation patterns (double tops, divergence, etc.) associated with them. Take note of the number of these set ups, on what day, in which session they occur, and at what time in each session. If you’ve done your backtesting, this should not be difficult to revisit.

You will begin to notice patterns. You will also begin to notice, especially when trading multiple pairs; there are more than enough opportunities to make a living. For every three trades I take, I miss ten others. It takes a while, but you will learn to get over the regret of missed opportunities – because in trading, compared to other businesses, the opportunities are infinite. You can’t change the past, so worrying about missed trades is a waste of time.

Let’s do some quick math. On an 8 pair portfolio on the 1 Hr time frame there is an average of 30 signals per typical week for my trade plan for between 50 and 100 pips each. On average, 20 or so of these occur during the times I trade – London and New York. If I caught 4 trades, had a 1:1 risk/reward and lost 25% of those trades, with an average of 50 pips net profit per winning trade that would be 100 pips per week. (3 winners for 50 pips each and one loser at -50 pips = net 100 pips.) On a full lot that is $4000.00 per month USD (400 pips x $10 per pip = $4,000.) That’s a sizeable part time income. The point is simply that you can very easily, and in a very relaxed fashion, make good money.

Sitting out can be advantageous also. It is no mistake that some pros do not trade at all on Fridays or days of major announcements (FOMC, NFP, Beige Book, etc.) They realize there are so many opportunities, why put any capital at risk on a day of unpredictable volatility? They also know that trading is a long term endeavor and that quality, not quantity, is the key to profitability. They never feel as though they are missing something by being out of the market. They are patient, deliberate and will wait hours, days and even weeks for the proper set up.

The market rewards this patience and discretion. If during high volatility, you find yourself becoming anxious, overwhelmed or regretful – stop trading.

Understand that you can’t have it all. You can’t have every pip of every run on every pair. Look back. You only need two or three good trades per week to be hugely successful.

With the recent volatility these past months, there can be a tendency to over trade. The fear of loss compels many traders; if they don’t take advantage of these huge moves, somehow they are unsatisfied or feel inadequate – and then try to catch up by over trading. Too many positions can become unmanageable, placing too much capital at risk, and creating fear that will cause you to close trades before your profit targets are attained or impulsively close them at the slightest pull back against your position.

Although adjustments may be made for market conditions, professional traders stick to their plan and their rules – whether August, December  or  April – financial crisis or no. It is the calm trader that profits consistently – even during such volatility and uncertainty. So learn to relax and be satisfied with less – that is, fewer and better trades. It will keep your head in the game and money in your account.

Rick

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