Overconfidence tempts traders to trade too much in foreign exchange trading
The main reason for forex merchants buy and sell too much in foreign exchange trading is over-confidence although the reasons are many. This is particularly true after a captivating trade or a sequence of winning trades. Traders are inclined to turn out to be over-confident subsequent to the thump of a good winner or winners and particularly if they are not following a foreign exchange trading plan and are presently trading off the ‘seat of their pants’. There is a substantial scientific research that supports the claim that the majority traders operate too frequently because of over-confidence. The majority people over-trade because of “overweighting” their winning trades.
Overestimate on competencies
However, when they are doing well in foreign exchange trading, these traders illogically attribute accomplishment excessively to their capacity rather than fortune. This shows investors the way to overestimate their individual capacities and operate too uncompromisingly. Even investors with other earlier failures than winnings may turn out to be overconfident by over-estimating their winnings. Recent research on reasons for a trader deals too much in foreign exchange trading reveals the fact that operating low-time structures and high-frequency trading turn out to be extremely addictive. Trading habit is the only means to explain the fact that “more than half of day trading can be traced to dealers with substantial experience and a record of losses”. The primary reason a day-trader with substantial experience and a record of losses persist to the day-trade if not for being addicted to it is that they are avoiding over-estimating their winning trades. They do not mean that they are “figuring it all out” somewhat they must just be observed as one more implementation of their edge. Bear in mind that even if you are a forex trader who wins 70 percent of the time, you still by no means know which trades will be one among the 70 percent or when one among your 30 percent losers will happen. Thus you must by no means over-trade or over-leverage your account. Just trade while your trading edge is present, and eventually you are supposed to construct consistent money.
So as a forex trader you should understand that you must not allocate too much importance to any one trade. This means that, do not begin over-trading presently for the reason that you turn out to be overly confident after striking a few good winners. Bear in mind, you can accomplish the same overall profit over the same time period by trading less frequently. You can perform this by concentrating on excellence of trades somewhat than magnitude of trades. Your forex trading philosophy should be derived from trading only the highest-quality price action trade systems, which denotes a smaller amount trades and not as much of the tension. The forex market does not mind about you or your small feelings, so being correct and incorrect and having a self-image about your trading are all totally immaterial things to your trade outcome.
Get a free Forex PDF PLUS:
- 14 Video Lessons
- Free One-on-One Training
- A 5000$ Training Account
- In-House Daily Analysis
- Get FULL ACCESS