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FXTE Article: Hyper Trading: How Can You Beat It?
What do you call the type of trading that involves ...
- Constantly buying and selling currency pairs;
- Obsessively watching the market and reacting to every pip movement, and
- Hastily entering numerous trades too late and exiting trades too early?
The frightening answer is hyper trading! And for many traders the question is: How
can you beat it?
Hyper trading can affect any type of trader—stock, options, currency, commodity,
and bond traders alike—and has led to the premature end of many traders with good
instincts that simply went unchecked. Absolutely nothing is wrong with trading a
lot, if you control your risks and work within the parameters of a trading plan.
Hyper trading is compulsive, high-maintenance, and high-volume, small-gain trading
without a system or long-term goals, which is most likely bad for your trading account.
Of course, no trader should feel limited to making only one trade on any trending
currency pair. Multiple trades can be very profitable. For example, between September
and December 2005, the USD/JPY offered many opportunities to get in and out with
profits on its legendary run up to multi-year highs. In fact, it’s very profitable
to cash in while a currency pair is strongly trending.
Who Wins with Hyper Trading?
Taking many small gains is not an efficient way to trade. Why? One word says it
all: fees! The transaction costs, while minimal in currency trading, reduce your
profits. Locking in small gains has advantages, but modifying the limit order to
maximize the profit margin is a more effective and risk-managed way to approach
each trade.
Figure 1.1 Daily USD/JPY Candlestick Chart
In Figure 1.1, notice the upward trend starting September when the currency pair
rose from 109.14 to 120.11 in three months! A trader could easily have ridden this
upward trend in a single trade to maximum profits. Hyper traders would have profited,
but paid additional transaction costs and increased their risk.
Occasionally, a single currency pair offers traders the chance to squeeze out multiple
profits, as in the USD/JPY example. But this is the exception rather than the rule.
More trades mean more fees. If you are keeping score with dollars, more fees means
the dealer is the winner. There is nothing wrong with hyper trading, if paying more
commission is part of your plan. But if it isn’t your plan, then perhaps you should
think about learning how professionals look at the markets in order to avoid paying
excessive fees.
Many times traders get caught up in the thrill of entering new trades and closing
old ones. They get swept away in the activity of trading, spurred on by the ebbing
and flowing market. With the constant availability of the 24-hour trading market
unique to Forex, traders find themselves focusing on the fun of trading instead
of the profits they should be making.
The Antidote for Hyper Trading
So, how can a person trade responsibly and profitably while avoiding the trap of
hyper trading? Stick to your trading system. It’s a great way to avoid getting caught
up in the euphoria that can lead to hyper trading. Conversely, trading systems can
help keep losses in perspective. In short, a good trading system takes the emotions—both
the highs and the lows—out of trading allowing traders to focus on the bigger picture.
It’s absolutely vital to male sure that your trading plan includes rules for exits—simply
getting out as well as adjusting the exit points when new market information emerges.
A good trading system helps traders to decide when to refine their limits and just
let profits run. Learning to use leverage (or margin) effectively can also help
to maximize profits.
Trading is an enjoyable way to make money when you know the mechanics of the market
and have acquired the basic skills you need for success and profits. Unfortunately,
more trading does not always mean more money—and many times means less. Quality
trades produce profits. Quantity trades always add up to more fees, risk, and stress.
Follow your plan, remember your goals, and enjoy Forex trading—one trade at a time!
Robin Lofton
Staff Writer & Forex Strategist
FX Trading Education Corp.
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