How to Prevent the Risk of Overtrading

You may have noticed that there are some binary options traders who flame out quite quickly, burning through the money that they have accumulated. Unfortunately, this is not an uncommon tendency among traders.

One of the more widespread reasons for such an occurrence is the indulgence in overtrading. The traders get carried away and trade either in large volumes or place numerous trades within a short period of time. Doing so, however, is more akin to gambling than it is to trading. This is because the outcome of such a venture is often unavoidable – losing money. If you are looking to avoid this, here is how to prevent the risk of overtrading:

Have a Plan, Stick to It

It is going to be quite difficult to navigate the markets in a meaningful way if you don’t have a plan. Before you place your first trade, it is important to have constructed a strategy for yourself. This should include how you will manage your capital and your finances.

For instance, how much of your overall capital are you willing to spend on any one trade? What will you do with your profits? You will also need to figure out the average time period of your trades.

It can be difficult to conclude on how many trades that you can execute within any time period. Nonetheless, it is important to set a limit for yourself. As long as you remain within the boundaries that you have created for yourself, you will be able to prevent any unnecessary losses. Perhaps what is more challenging than creating a plan is actually sticking to it.This is just as significant as coming up with a strategy itself.

Don’t Let Your Mental State Get the Better of You

Even if you are not the type of trader who is prone to overtrading, you may feel that there are instances when this is justified. This happens when one of two things happen. The first scenario is when you hit a winning streak.

As you seem to be placing trade after trade that it is ending up in the money, you feel as though you should make as many trades as possible. However, placing trades simply for the sake of it will not yield the same results as you previous strategy did.

Therefore, you may quickly find yourself losing money. Now the other set of circumstances is when you are suddenly losing all of the trades that you are placing. This can be a difficult pill to swallow. It is easy to imagine that the only way you can overcome such a dismal streak is to keep placing more and more trades. The sad truth is you will just probably continue to lose money. By the time that you actually start winning trades, it may not be enough to make up for the losses.

The Fear of a Missed Opportunity is Not Justified

Another reason that people may feel the need to overtrade is because they feel that they may be missing out on an opportunity. Therefore, they trade as much as they can to take full advantage of any chances there may be. Now, it is quite possible that you may miss a particular opportunistic trade here or there.

This is inevitable, nonetheless. It is also not that big of a deal – such trades are rarely monumental and really do not warrant overtrading. It is much better to miss a couple of trades rather than waste a lot of money waiting for the right circumstances to come along.

These are a few of the ways you can prevent the risk of overtrading. It is important to realize that, in the end, it is only you who has all of the control and can avoid this situation.

Page Updated: May 9, 2017

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