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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.

Over Trading

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

  1. CAD/CHF – 2:38 pm est
  2. AUD/CAD – 1:52 pm est
  3. NZD/CAD – 1:27 pm est


NZD/CAD

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:


AUD/CAD

Click Here to see the AUD/CAD trade setups history.

A similar continuation setup here too:

Monthly time frame:


CAD/CHF

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:



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"Whether you think you can, or you think you cannot, you are right." - Henry Ford

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36 thoughts on “The Urge to Over Trade In the Forex Market
  1. Zwane

    Hi Chris

    Thanks for an informative article. The USD/CAD has broken below the 1.12774(as per your last analyses) is it a 100 score short set up?

    • Hi Zwane,

      What about the lower shadow of the last closed daily candlestick?

  2. Alper

    I have absolutely different trading style and strategy but I must say that, this website one of the best fx website I have ever seen … Realy gives fx keys …

  3. Jeng

    Excellent guidance Chris.
    Thank You!!

  4. Keftin

    Hello Chris can you include EURGBP daily chart analysis, Just curious about the short trade setup

    • Hi Keftin,

      There is nothing important there. The short setup was not that strong, and it is too late to go short now, even if you wanted to trade based on a weak trade setup. In spite of this, EUR/GBP is bearish on the monthly chart, and so I think it will break below the support line on the daily chart.

      • Keftin

        ok Chris, I think i need a tune up. I just remembered your advice about tuning oneself with the saved chart of a strong setup. What i do is to flip through the pictures before going to analyses a trade setup. Still learning my Mentor. I have a question. Can one still save pictures of trades that went opposite direction and hit stop loss as tuneup picture too?

        • Hi Keftin,

          You can always save your trade screenshots and check them when you have time. I help you learn a lot.

  5. Dogan

    Dear Chris
    At NZDUSD monthly chart you have written “There is a strong uptrend there, however it looks exhausted now, because the last several candlestick are relatively strong Bullish candlesticks.” I think you mean it as bearish.
    Thanks for your kind help to us
    Dogan

    • Hi Dogan,

      Thank you and welcome to LuckScout 🙂

      I fixed the typo. Thanks a million.

  6. John Minnee

    Thanks Chris
    I have trouble putting in resistance lines, and as an example on the CADCHF monthly chart why do you pick 2012.08.01 candlestick instead of 2013.05.01 as a point. Is it because it happened first?
    Also AUDCAD Monthly chart why do you start at 2010.60.01 and not 2009.02.01 or even 2008.10.01?

    • Hi John,

      Yes, the first two high are the origin of the resistance.

      AUD/CAD: I used the most recent two points to plot an accurate support line.

  7. okeke

    Love the new look of your website Chris. Though I surf mostly from my phone and I can’t zoom in anymore on each of the charts you post for closer study and observation!

    • Hi Okeke,

      It has a mobile-friendly template now. However, it is not a good idea to follow the forex market through the phones. Even a small laptop is much better than the phone.

      You can still see the images with a bigger size if you click on them and zoom in.

  8. Alt

    Why eur/gbp isn’t a strong short setup in the daily chart?
    Do you think it will go up because on the h4 chart, there is a candle closed outside the Bollinger band?
    Do you think that we have to wait Monday morning to trade? I live in France and the forex market opens at 11 o’clock (gmt+1)?
    I read most articles of forex keys and i really want to thank you! I learned a lot of things!! You are so helpful but sometimes i found myself confused about the trade setup. Do you think, it is normal?

  9. singh

    Oh wow, new site! Mobile friendliness is good. A slight suggestion, you might want to make it using user-agent for desktop/mobile.
    Overall good layout.

    Keep it up

    • Hi Singh,

      You can scroll down with your mobile and you will see the buttons to switch to the default template. The default template is still the same. Just when you visit with your mobile you will see a different template.

      • Singh

        Yes, I saw it for few minutes, it looked cool. The reason for my comment was that I got mobile template viewing on my laptop but I guess you were just testing.

        • That’s strange. The mobile template should not work on laptops.

  10. Redpants

    Chris A great read on not overtrading one mistake I was constantly doing before I ”lucked” on this great web site . Also the urge to trade the smaller time frames under one day was a constant down fall . Since then gaining more discipline and trying to combine with Psychology a constant over looked area why most off ultimately fail ! Thanks to you I managed to get in profit demo and know live and the need to project those bullet’s is ever constant !
    Good luck to all this week best John

  11. alt

    Hello, thank you for everything. Are you going to comment eurgbp daily candlestick?

    • You’re welcome.

      Yes, I am going to analyze it today.

  12. Jie

    Hi Chris,

    I did not see any strong trade setup which in my opinion you would enter. Neither do I trade setups based on middle BB. I only use single BB now. Am I on the right track? 🙂

    • Jie

      I mean setups for the past 2 weeks until now

    • Hi Jie,

      Yes, you are on the right track 🙂

  13. steve

    Hi Chris.. hope you had a fabulous weekend…. i was going through the charts trying to find the strong setups that you teach us and i found something interesting on the eurchf daily chart, between 2012-05-24 to 2012-09-04 the market was flat… any particular reason for this? sorry for going off topic.

    • Hi Steve,

      It is related to the time that Swiss National Bank had a policy that pined the Franc against the Euro at a minimum rate of 1.20.

  14. ik khan

    Hi chris

    CHF upcoming reports Trade balance and interest rate decision … can it change the market trend of all chf pairs?

    thanks

    • Yes, it can. Let’s see.

      • ik khan

        thanks sir

  15. ik khan

    hi chris

    CHF trade balance disappointed… negative for CHF …
    now waiting for the interest rate decision..

  16. ik khan

    dear sir:

    if CHF interest rate comes positive and trade balance is already negative then what will be market trend??


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