The introduction of trading software’s such as Meta Trader, has given brokerage companies the ability to offer numerous currencies, stocks, indices, metals etc. to their client to choose from. When there is so much option like this to choose from, there is this tendency to try them all in the quest to find the best but due to man’s nature of being greedy, indecisive and emotional. Most traders end up trading all of them which lead to many accounts being blown (blown forex account).
To further illustrate, I will give an example using 3 restaurants that serve different number of dishes, let’s say restaurant A serve only one type of meal to their customers (this meal can be any kind of food that comes to your mind) and another restaurant, restaurant B serves only four kinds of meals and restaurant C serves ten different meals.
We can see observe that:
Restaurant A will be so good in preparing and serving their meal to the customer, all the staffs, down from the chefs down to the waiter/waitress will all have a specialize skill in preparing and serving that meal to their customers.
Restaurant B will have a good knowledge about the meal they serve but won’t be as good as the first restaurant (restaurant A) when it comes to skills, fast decision and specialization because they will have so many options to consider when attending to their customers.
Restaurant C on the other hand may have a larger customer attendance compare to the rest of the two restaurants but will have a poor customer satisfaction because their efforts will be diversify into so many meal preparations and will give a good portion of their attention to the dish which customers prefer the most while giving less or no attention to others.
We can liken this same situation to what happens to forex trader, trader most times glance through all the currency symbols (pairs) available in the market watch and make numerous trades. They fails to understand that each currency pair reacts differently to news, technical analysis etc.
From the illustration above, we can see 3 category of forex trader’s:
Category one are those who pick a single currency pair which they believe will fit their strategy and trading plan and as such will trade this pair till they becomes so good in mastering its movements (demand and supply zones, resistance and support level, pivot points).
Category two, consist of traders who chose a hand full of different currencies which may suit their strategy or trading plan, these pairs are not too numerous for the trader to keep track of, as such, they pay attention to all of them and find the best performing pair according to his strategy and focus on it.
Categories three are sets of traders that trade any pairs, commodity, stocks, and options. These traders do not have a set of market which they trade and as such they trade anything which there broker offers to them. A thorough check shows that this category is made up of scalpers, newbies and those who don’t have much experience on how the financial market work.
In summary, most people do not know the grave-danger which over trading poses to their account, and only a few have managed to survive it. Over trading is when a trader places too many positions in the markets and these positions are usually in the opposite directions. For example a trader might open a buy position and when the market moves down a certain pips he close the buy with a loss and switch over to a sell and vise visa, he keep doing this just to maximize this profit and might end up losing his account.
I personally I trade just four pairs which include: USDJPY, USDCAD, GBPUSD and AUDUSD I recently added GOLD to the list because I have become so good with trading these four pairs and I will gradually add more pairs to my trading basket as I become good in analyzing and mastering there movement and I also advise forex traders to do the same.