In the rapidly changing world of trading, the term “overtrading” regularly comes up, but it is often misunderstood. Although many traders may dive into Forex deals with the hope of maximizing profits, they may unwittingly fall into the trap of overtrading.
Next, we will learn the psychological foundations of overtrading, its economic consequences, basic signs, as well as how the DotBig broker helps identify and avoid this.
What is Overtrading?
Overtrading is a problem familiar to experienced traders. There is an opinion that excessive trading is about too frequent transactions. However, the problem of overtrading lies not in the frequency of transactions, but in the psychology of traders.
Excessive dealing can be defined in two ways. The first is making transactions that are outside the trader’s working plan. The second is making any transactions that result in exceeding the acceptable risk limits set by you. In other words, a trader’s measure is his trading plan. Off-plan deals are excessive trading.
There is an opinion that excessive trading can also be attributed to frequent transactions. Intraday traders (scalpers) will disagree with this. Actually, it is possible to trade excessively on any timelines. Therefore, you should not blame the chosen time frame for overtrading.
Some professional traders, traders of a prop company, trade on minute timeframes and actively make trades. But this does not mean that they trade excessively. Because this is their trading plan and this is the essence of their trading strategy.
Psychological Factors behind Overtrading
There are two main reasons for overtrading:
- Fear and greed as driving forces
Excessive trading is based on the psychological struggle between fear and greed. Greed can trigger impulsive trading decisions in the hope of capturing every potential profit, while fear can run quick deals to avoid losses.
- Overconfidence
Many newbies mistakenly believe that they have an excellent understanding of the market, as a result of which they ignore the cautionary principles. This overestimation of one’s own capabilities can lead to reckless trading behavior.
Avoiding Overtrading: Expert Tips
DotBig investments experts recommend novice players to act in such a way as to avoid excessive buying and selling of assets:
After a major loss, take a break
Large losses happen to all traders. The reason to take a break is that the trader will unknowingly feel the need to win back the money.
Give time for the emotional fright to pass, so it would be right not to open the deal yet. For day traders, it can take from a few days to a week. Swing traders should take a month or more.
Trade only a certain number of stocks per day
To prevent excessive trading, using the limit-rule is necessary.
It is possible to set a limit of 7 or 10 transactions for yourself. Whatever that number is, you have to follow the rule.
Set profit and loss limits
You need to set a target value for profit or loss on the day when the Forex player finishes trading. The point is that these profit and loss limits per day should be based on real historical data, not on hope or fear.
Don’t trade all day long
If you trade all day, it does not mean that you will earn more money. Forex dealing is one of the activities in life where you need to work hard offline, and not necessarily be in the market. Select the time interval within the day or the maximum number of hours for trading.
Follow your trading plan
Every DotBig exchange trader needs a plan. It doesn’t have to be a long list of difficult tasks. It is better to make a step-by-step plan and set limits for trading.
Profitable Low-Risks Trading with DotBig
According to DotBig reviews, its clients get a brilliant chance to reduce the risk of losses, as well as prevent over-trading. The platform provides effective risk management tools and methods, including setting stop losses, sizing positions correctly, and diversifying the trading portfolio.
Besides, traders should avoid the risk of losing too much of their capital in a single deal and be prepared to accept losses as part of the trading process. By following effective risk management techniques, Forex players can reduce the risk of big losses and improve their overall trading performance.
DotBig Tools and Security
The DotBig Forex platform offers more than 50 indicators, and is also created using modern technologies. Thanks to its trading signals, any user can independently choose favorable moments for making trades and determine patterns in a matter of seconds.
DotBig gives everyone the opportunity to use the calendar on its website, which records the most important events in the financial market in the world. It is possible to conduct auctions for participants using robots, which significantly reduces all existing financial risks.
In addition, the social trading option allows beginners to understand the investment world faster. They can copy the most profitable contracts from well-known speculators and make a profit from it. It is possible to use a demo account for trading separately, so as not to lose all your assets at once.
DotBig reviews emphasize that the broker has trust. The partners note that DotBig pays great attention to data protection and security on the platform so that the participants can work well. Also, some users share their stories when timely information about threats helps them avoid losing funds and protect their data. Such stories become a confirmation of DotBig’s chosen position about informing investors, using protection technologies and increasing confidence in the broker.