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Overtrading

Posted By Nick Parry On Sunday, June 22nd, 2008 With 0 Comments

So, you’re forex spread betting, you’re winning, making money and life is good. ‘I know, I’ll trade even more so I can make even more money, and be even happier’ you say to yourself. And that’s when it goes all wrong. Spread betting too much (over trading) is bad for your bank account and bad for your health. Let’s go into some detail about this often over looked fact…

It’s one of those funny things that neophyte forex spread bettors don’t even consider, but all the seasoned traders know it as a fact. One of the quickest ways to bankruptcy is by trading too much. Unfortunately, a majority of traders do this and contribute nicely to the famous ’90 percent of all spread bettors lose’ truism.

The main thing to remember is that making more profit is not about making more spread bets, if that were true, the converse is also true – more spread bets = more losses. The reality is that profits are made by making the right trades every time. Trades that are based on sound analysis, sticking to your trading plan and rules, and entering only when your signal tells you to enter.

What is over trading?

Excessive forex spread betting comes in various forms:

  • Spread betting too large a bet size, this is over leveraging (betting £10 per point as opposed to £1 per point).
  • Spread betting too often, This will be determined by your style – scalp/day/swing/position trader.
  • Spread betting too many positions in one go. This will confuse you, stress you and mess with your emotions.
  • Staring at your screen all day. This is mostly a waste of time and bad for your eyes (and backside).
  • A trader I know, was following a system in 30 markets. He got entry signals for 18 of the 30. This trader tried to enter all 18. Luckily, the prices were such that only three of them would get filled. If this guy did get filled on all 18, he would be seriously over leveraged, confused, stresses and possibly on the fringes of blowing his entire account.

Good forex spread bettors immediately down size their trades when they are losing or have a large draw-down on their account.

The total commitment you make on any entry should be relative to a reasonable expectation of the profit potential for that trade. Each trade is different and must be weighed on its merits. You need to know what your risk/reward and win/loss ratios are. Then you can calculate your expectancy. Then you know without reasonable doubt how many £s you will return for every £ you put it (over enough trades).

Your emotions will be a good indicator of over trading. If you are spread betting forex too much you will be out of your comfort zone, meaning you’ll be stressed, confused, fearful, greedy and unhappy while positions are on. Use this as a tell sign, and get out (or don’t get in) while the going is good.

Remember, forex spread betting is not like any other line of work, being out of your comfort zone is not a good thing (even though your line manager, who’s just been on a ‘how to get more out of your employees’ training course will tell you otherwise).

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