Do you know the best way to avoid over-trading?

In this episode of Truth About FX, Walter digs into one of the most common problems even seasoned traders bump into: over-trading and over-leveraging. He points out two main points that will help you solve this. He also shares an interesting video about moving average crossover and the idea behind it.

Download (Duration: 04:59 / 5.78 MB)

In This Episode:

00:48 – clever things

02:50 – crossover

04:12 – a game

Tweetables:

Know what percentage you’re taking [Click To Tweet].

Focus on execution  [Click To Tweet].

Set-up a reward system for yourself  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. This is a pretty much a common question but this trader is asking or this trader is saying that, “My biggest challenge is taking a trade right after a winning trade because I get too excited. So that leads to things like over-trading, over-leveraging, not cutting losers quickly. How do I solve that?”

Walter: That is a great question. There’s a couple of things you can do. One of the really clever things I’ve seen is that, one of my friends who is managing money, he’s team didn’t really know what percentage they were taking.

So, he had this platform programmed in China and essentially what they did was they hid from the traders what they were trading, how much they were trading, like how much risk is on the position.

They would just see the pips, trading it like a game, trying to make more pips. What was interesting was they found they would run a 10 moving average and a 20 moving average of essentially their trading results.

I’ll post a video in the shownotes so you guys can see how this works because this is a really a cool idea. So, what you do is… What they would do is they would stop trading a lot of money that wouldn’t give them much to trade once their 10 moving average cross to 20 so they were kind of like running like a moving crossover system on the trader.

You can do this yourself, it gets so cool. I’ll show you guys how they do it like with the spreadsheet in the video in the shownotes. But what’s cool about it is, it’s almost like you’re trying to anticipate a drawdown or an overconfidence period.

I think that’s kind of an interesting idea that you might also like to look at like building some breaks or you could use the moving average cursor. So, when you see your performance crossover you basically go to demo or reduce your position size greatly so that’s one way to do it.

The other thing you can do is you can focus on execution which is really the name of the game. I think that’s why you can teach people to trade when they don’t really have a concept of money like as in kids or they see it as a game.

If you can see trading as a game, what happens is you focus more on following the rules of the gam...