Before you learn how to avoid overtrading, you need to be aware of its symptoms. Moreover, you need to understand your relationship with money, as it indicates one of the most important characteristics of a successful trader.
How to Spot Overtrading?
Overtrading is simply the easiest recipe for failure that you can get caught up in. There are many symptoms that can indicate you are overtrading. You can spot this malpractice if you notice a rapid increase in revenue, a decrease in liquidity ratios, an increase in short-time borrowing, and a decline in cash balance. In addition, an increase in gearing level, in receivables, and a decrease in profit margins could also signal the overtrade.
Thus, when you notice any of these signals happening in your financial account, you might consider the option that you are overtrading. Additionally, it is vital to know how to stop this trend, before it gets into your head and starts affecting your psychological state.
Some traders might think that trading has nothing to do with emotions. However, there are very close ties between these two. Experts say you need to keep your emotions in balance all time because the market is always unpredictable and has a lot of unexpected turns.
Yet, if you know how to identify overtrading and know how to deal with it, then you will be a step ahead of the majority of traders nowadays, who trade their emotions along with their money.
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How to Avoid Overtrading?
There are multiple ways to keep up with your financial plan successfully, while not getting into emotional stress. In other words, to avoid overtrading.
First of all, when you have a huge financial loss don't rush into another deal. Just take a break and think about the options. As a fact, after every big financial loss, you unconsciously get into an emotional pain. Moreover, it is not about the amount of the loss, as each trader has his/her own limits and expectations. This, no matter what the amount of money you lose, the emotional stress is almost the same
Furthermore, once you realized that you are overtrading, you will need to set new payment terms. Setting new terms for future trades is a good step to stop this malpractice.
Moreover, time is an important factor, as trading is not a job with fixed working hours that you should do to earn more money. Trading is considered one of these things that you need to work hard on the offline basis,but not necessarily in the market. You might want to stop placing too many trades all day long.
One more useful tip here is to set a profit and loss limits. These will be crucial for your financial account in case you overtrade. Setting a profit and loss limits will allow you to control the amount of your trades per day, therefore safeguarding your account.
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