Over Trading
By Jay Norris�
This article is a reprint from August of 2008
I was talking to a client today, and he asked what I was up to and I told him I was in a day-trade in gold.
He asked if I traded gold much and I told him no, not in awhile, so I was starting out small. I told him how in a forex account we can trade as little as 10 ounces at a time. My trade was 30 ounces.
He thought that strange that some one with my experience would trade so small. I knew right away that his perception that I should be trading larger size was at the heart of the problem of why people over-trade.
The truth is, I told him, if I had been away from trading that market for many months, I should have been starting back in a demo account. It’s well known among experienced traders that the worst time to trade, let along trade size, is after a vacation, or after you’ve been out of a market for awhile.
My point is smart traders know to ease back in because their primary concern is risk, that is not losing money. I don’t know how heavily gold is trading these days. I don’t know how smooth it runs or how choppy it reacts. What I do know is by trading small to start I’m limiting how much of my money I can lose to professional gold traders. Realistically I should be demo trading it until I’ve got a dozen or so trades under my belt.
I really can’t speak much on why people over-trade, especially their own money. It just makes no sense to me. But I do know it is a problem for many a retail trader. The only solution to that problem I can think of is one that’s already in place for most of us, and that is limit the risk per trade to somewhere between 2 to 3% of your account, and never break that rule.
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 and a Trading Instructor at Trading-U.com. To see our course selection go to: Intermediate Level Trading Course
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.
