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Overtrading and Undertrading in Forex

Following a system is a key component of succeeding in 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 that you can integrate into your real life and that will not cause you to trade in imbalanced ways. Two common problems that currency traders face are undertrading and overtrading. While some Forex traders, under- or overtrade because of trepidation, impatience or other psychological factors, many do it because their systems tell them to. How do you fix under- or overtrading when it is built into your trading system?

Oftentimes, overtrading and undertrading are built into a system because of the context of that system. It is not necessarily your entry or exit rules that are causing you to take too few trades or too many — it may be that you are looking at too many currency pairs or not enough currency pairs. Or perhaps, you are trading on a timeframe that is either too slow or too fast. It is very common for new FX traders to trade faster timeframes than they need to or should starting out, for example. If you trade a fast timeframe when you are starting out, not only will you be inundated with more trading opportunities than you necessarily can handle, but you will 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 overtrades. Many people undertrade Forex as well.

If you are 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 do not 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 are not trading enough to turn a good profit and your system is not signaling you to take any more trades than you are taking now, think about moving to a faster timeframe (only if you feel comfortable doing so — and do not forget to demo it first), or looking at more currency pairs. If you are only taking A+ Forex setups, you are 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 foreign exchange trading. A lot of people do not think of simply changing the context of how they trade and wonder if they need to revamp their whole system. It is often not the system that is not working, however. You may just need to change the way you apply it.