Over and Under-Trading in Forex

Following a system is a key component of succeeding at Forex, but there is really more to it than that. Your Forex system has to not only work, but be balanced-it has to be something which you can integrate into your real life, and which won’t cause you to trade in imbalanced ways. Two common problems which Forex traders face are under-trading and over-trading. While some Forex traders under- or over-trade because of trepidation, impatience or other psychological factors, many do it because their systems tell them to. How do you fix under- or over-trading when it’s built into your trading system?

Oftentimes, over-trading and under-trading are built into a system because of the context of that system. It isn’t necessarily your entry or exit rules which are causing you to take too few trades or too many — it may be that you’re looking at too many currency pairs or not enough currency pairs. Or perhaps you’re trading on a Forex timeframe which is too slow or too fast. It’s very common for new Forex traders to trade faster timeframes than they need to or should starting out, for example. If you trade a fast timeframe when you’re starting out, not only will you be inundated with more trading opportunities than you necessarily can handle, but you’ll have less time to make decisions in and, more relevantly, less time to patch up mistakes. Does this mean you have to trade a slower timeframe? Not necessarily; not every personality is suited to having all that time to think (and double guess). And again, not everyone over-trades. Many people under-trade Forex as well.

If you’re taking on more Forex trades than you can handle, consider dropping to a slower timeframe (test this first) or dropping a few currency pairs. If you don’t feel overwhelmed with information, just with trading, consider imposing some rules on yourself so that you only take a certain number of trades in a given timeframe. Then pick only the very best setups (which is what you should be doing anyway).

If you aren’t trading enough to turn a good profit and your system isn’t signaling you to take any more trades than you are now, think about moving to a faster timeframe (only if you feel comfortable doing so — and don’t forget to demo it first), or looking at more currency pairs. If you’re only taking A+ Forex setups, you’re on the right track, but you may be able to find more trades of the same high caliber simply by looking at more currency pairs or a faster timeframe where more setups form.

These are just a couple of ideas to consider which may help you to improve your Forex trading. A lot of people don’t think of simply changing the context of how they trade, and wonder if they need to revamp their whole system. It’s often not the system that’s not working, however. You may just need to change the way you apply it.

Good Forex Trades Need Great Context

On your path to becoming a profitable trader, you will test many different methods for entering and exiting trades. At some point you may find a method which works pretty well for you and which you feel comfortable using. You may take a lot of great trades using this method, only to find that one day your method just stops working. What happened? Did your system break? Will you have to start all over?

Sometimes the answer to questions like this is simpler than you might expect. A lot of traders pay attention to entry triggers like moving average crossovers, price action patterns, and other indicators lining up on their charts, but don’t pay as much attention to what the market is doing on a given day. The market does slowly transform, and like any other living system it will evolve with time. Some things about Forex will never likely change, but others are sure to do so. The “mood” of the market can change considerably as the years go by, and a system which worked great in one context may fail in another—or simply need an adjustment to keep working.

If you are in a situation like this and your system has abruptly “failed,” you may want to ask yourself if this is what has happened to you. Has the economic climate changed substantially since you were last profitable? If so, then perhaps the context around your trades has stopped being quite as optimal as it once was. You may have been placing trades in an excellent context before without even knowing it or attempting it by complete coincidence. And now that the context isn’t as great, your trades aren’t working out.

Here are some questions to consider. Ask yourself, “Am I trading against the trend?” This can often work against you. “Am I trading in a choppy market?” Choppiness kills a lot of traders. If there are a lot of fake outs, sometimes you need to take a break and wait for the market to even out a bit before you come back in. “But I’ll have to wait forever,” you might say. If this is the case, then look at more currency pairs. If you only trade a couple of pairs, and great setups are coming half as often in the current market climate, then think about looking at twice as many pairs each day. This phase of the market, like all others, will pass. It doesn’t mean your system is broken, it just means that right now it’s a little harder to make it work than usual. All traders face this sometimes. Once in a while you may indeed find you need to go back to the drawing board, but more often than not it’s a waste of time to start all over. If what you have makes sense and it works often enough, than you probably should just adapt to the market conditions and stick with what you’ve got.

Develop a technique to find the best setups in the best locations. Great Forex traders point out that finding excellent setups is like using a rifle, not a shotgun. They’re right—good trades don’t take good setups, they take great setups.