The Urge to Over Trade In the Forex Market
“Overt-trading” is the subject of my today’s tip of the day. After that, I am going to analyze the markets. Please don’t miss the today’s analysis, because there are some important events occurring on the weekly time frame of some currency pairs that I want to share with you. Yesterday, I also shared some very important tips about GBP/CAD and GBP/CHF. I know that many of you have not read the yesterday’s posts yet, because of the weekend. Therefore, before you go ahead and read the rest of this page, please read the yesterday’s analysis here, and then come back to this page and read the today’s tip of the day and market analysis.
Forex trading brings on a great deal of emotion to traders, especially beginners and novices. However, many traders don’t understand the impact it can have on them. Forex trading can be very emotional if the trader allows it to be.
Most traders don’t behave very irrationally when it comes to money. The urge to make money ranks as a top priority to the human, along with obtaining sex and food. It’s the desire to win that drives bids up and the fear of being the loser that drives them even higher. Once many educated traders sit at the computer to trade the real money, all that they’ve learned is suddenly forgotten.
Overtime, the Forex markets have become increasingly sophisticated. This of course is due to automation and the use of computers. Still, that has never increased the number of overall winners and in fact, it never will. Why? Because emotions will usually dictate the way that traders trade.
Three basic tests were done to observe how humans are drawn towards money:
1. A $20 bill was auctioned off to a group of approximately 20 people. As a result, the highest bidder offered $28 for it. Although it seems ridiculous to pay more for something than you know it’s worth, for the over bidder, it was the urge to win the auction.
2. Random people were asked if they would prefer to receive $100 a year from now or $102 a year and a day from now. Of course, most everyone chose the latter. In this case it is the larger amount that influences peoples’ decisions.
3. Several individuals were asked if they would rather receive $100 today or $102 tomorrow. Most everyone chose getting $100 today. Why? It’s the urge to receive a quick reward rather than having to wait a day for a few extra bucks. This is known as present bias.
In the Forex market, prices of currencies get pushed up way beyond their fair values. More likely, this is because traders want a piece of the action rather than to wait and profit. Generally, people don’t seem to understand true value. Once their emotions become involved, greed and action over rule rational thinking. When something is really, really close, they want it now.
Also, Forex traders are known to over trade. Since they’re driven by greed, they will always find the time to trade. Rather than being patient and waiting for the trade setup, traders would prefer to trade now. Many trade on whims or tips they’ve received from people they know. Some might even watch what their friend is doing and attempt to do the same. The truth is, rather than trading often, they should be doing it not so frequently.
Trading too much at a time is another common mistake traders make. They’re willing to risk high amounts of cash when instead, they should be trading with less.
So, remember, patience is a virtue. When Forex trading, you are not going to win a bundle of money in a hurry, no matter how you try. Hence, if you’re impatient and demand instant action, Forex trading is not for you.
Patience and discipline is something that you have to develop in yourself as a forex trader. One of the best ways to do that is working with long time frames. Working with long time frames like daily, weekly and monthly forces your to be patient, because it takes time for a trade setup to form on these time frames. Greed makes you trade with short time frames like 5min and 15min, because you think you will have more trade setups and so you will make more money, which is a big mistake because more trade setups doesn’t equal more profit.
Here on LuckScout, we have collected all the information you need to have to become a profitable forex trader. Don’t overload yourself with too much information and following too many trading systems and time frames. That doesn’t make you a trader. Don’t repeat the mistakes that over 95% of the traders repeat: Become A Profitable Forex Trader In 5 Easy Steps
NZD/CAD has not formed a typical “candlestick + Bollinger Bands” trade setup. However, it has formed a kind of trade setup that some traders take. The last closed weekly candlestick on the daily chart (candlestick #2 on the below chart) has formed a Dark Cloud Cover under the Bollinger Middle Band. This is known as a continuation trade setup by some traders. However, I don’t take these kinds of trade setups, because Bollinger Middle Band is used to be a tricky area.
NZD/CAD downtrend is strong and fresh on the weekly chart. I will not be surprised if it goes down for hundreds of more pips:
There is a different story on the monthly chart. There is a strong uptrend there, however it looks exhausted now, because the last several candlestick are relatively strong bearish candlesticks. The last closed monthly candlestick has closed with a long upper shadow below the Bollinger Middle Band. So it is normal to see a bearish trade setup form on the shorter time frames like weekly and daily. However, please note that the current price is about 280 pips above the uptrend support line. So if it really goes down, it will be stopped after a ~280 pips downward movement, and we will see some bullish candlesticks. It is possible that another high which is most probably lower than the last high forms above the uptrend support line.
On the daily chart, NZD/CAD is inside a Symmetrical Triangle:
Click Here to see the AUD/CAD trade setups history.
A similar continuation setup here too:
Click Here to see the CAD/CHF trade setups history.
CAD/CHF is moving exactly against AUD/CAD and NZD/CAD. The reason of the short trade setups on the above currency pairs is the long trade setup on CAD/CHF weekly chart:
It seems CAD/CHF has broken above the downtrend resistance line on the monthly chart. If this resistance line and its breakout is valid, then CAD/CHF is just at the beginning of a strong upward movement: