Overtrading: How Do You Determine If You Are Doing It?

Overtrading: How Do You Determine If You Are Doing It?
If you have been in the forex trading business for a while, then you know that one of the most common mistakes is overtrading. You have probably heard about it and done it without knowing. Different traders have varying ideas of what overtrading comprises. For most beginners, overtrading might involve doing just one more trade than usual. For intermediate and expert traders though, overtrading happens when a trader has lost track of time and their lots.

So, what is the standard of determining overtrading? Does free forex signals helps you in limiting your trade? There is no practical answer to that. But some key pointers can help you know if you are likely to trade beyond safe limits. Here they are:

Overlooking statistical basis when entering trades

1. Overlooking statistical basis when entering trades

Many forex brokers offer traders some enticing opportunities so that they can invest with them. Some of these brokers allow traders to use strategies that might give them high profits within a short time. What is unknown to many beginner traders though is that the levels of risk for such strategies are also high. Forex brokers know that the will make money by enticing traders with some of the strategies that can allow them to “overtrade”. As a trader, you should not overlook the statistical basis of your trades because this will result in overtrading.

2. Lack of set criteria for entering a new trade

Every trader also needs to have some set criteria that guide their trading expeditions. Trading opportunities are not very common in the market and only those with predetermined strategies can succeed. A lot of time and patience is needed to study and analyze the market for opportunities. The only exception exists for traders pursuing forex scalping strategies. Such traders can do several small trades without doing a lot of analysis. For retail traders though, trying to look for more than 20 pips of profit will count as overtrading.

The underlying principle of the forex market

Even with the above-mentioned methods of determining overtrading, it might still be difficult for some traders to classify their trading habits. This is why the Pareto Principle exists as an underlying principle for overtrading. The Pareto Principle states that the vast majority of profits (80%) are derived from less than 20% of opportunities. In the trading world, this is a realistic situation. Not only does venturing into trade guarantee you of few opportunities, but you also don’t get full benefits from the opportunities. If you choose to go for more opportunities, therefore, you might end up exposing yourself to higher risks.

Can you rely on instincts to minimize the risks?

Can you rely on instincts to minimize the risks?

Trading not only involves logic but also instincts. The truth about the market is that it is so volatile that it often catches many traders off-guard. The market data is thus just one aspect of trading. With patience and experience, traders become more aware of the market and make instinctive moves. Your gut feeling can save you from heavy losses but not when you are overtrading. Moderation is key to staying in the market for a longer period.

How To Avoid Overtrading

To keep yourself trading within acceptable limits, you will have to make several considerations. One of the best ways to avoid overtrading is by choosing your trade entries. You should not go for every opportunity that presents itself in the market. You should only go for opportunities when you are ready. Other ways you can avoid trading include:

  • Backtesting every trading method: If you are not a scalper, the best thing you can do is test all your trades first. You can easily do this by verifying your strategies with those that have been proven to be successful before. Keeping a journal will also help you keep track of your historical winning trades.
  • Resist temptation: Sometimes, the market can be very tempting. If you have set aside days when you are not supposed to trade, be sure to follow through with your plan. Even if the market conditions are so enticing, make an effort to avoid trading.


All kinds of traders fall victim to overtrading. Both beginners and experts tend to be swayed by market conditions. Experienced traders do not follow the market unnecessarily though. Having a strict trading plan and following it is the best way to avoid a habit of overtrading.


The Editorial Team of MyBloggerLab consists of a group of Professional Blogger geeks Led by Syed Faizan Ali (Founder of MyBloggerLab).

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