Does Your Forex Trading Plan Encourage You To Overtrade?

Welcome Ryan, the author of this Forex Project guest post. Ryan trades from a quiet country lake house and helps traders through his blog at

Does your trading plan encourage you to over trade?

Recently I started a survey on my website asking traders to answer this question:

“What is holding you back from trading successfully?”

Currently the number one answer is “I make some money, and then I give it all back.”

Multiple factors contribute to this result however over trading is the most frequent concern struggling traders email me with. I have some thoughts to avoid over trading I hope you’ll find useful.

Consider Your Trading Plan

Over trading may be baked into your trading plan without you realizing it. I received an email from a concerned trader who struggled with taking too many trades although they were following their trading plan. I asked to look at their trading plan and found it was built around the 60 minute chart, the opening of each trading session, support and resistance levels plus the MACD indicator. How many opportunities do you think their trading plan generated on a daily or weekly basis?

I’m a big fan of slowing things down with longer time frames. Using a longer time frame automatically reduces the number of trades you will consider which reduces your trading plan’s built in propensity for over trading. You won’t be tempted to take a “valid signal” 10 times a day trading a daily chart. The vast majority of my trades are planned on the daily chart with the entry taken on a four hour chart.

Consider a Weekly Goal

In my trading plan I have a weekly goal of 50 to 100 points. This is a realistic goal for me to achieve and having the number written down reminds me that once I’ve made my weekly goal there is no reason to place it at risk. When the goal is achieved it is time to do anything other than trade. If you’re trading a lower time frame I think setting a weekly goal is even more critical because as we have discussed, shorter time frames offer more “trading opportunities” which place your profit at risk. I’ve had this weekly goal established for years and it works well against over trading.

Some traders may think a goal of 50 to 100 points a week is too low but keep in mind there are as many ways to configure a trading account as there are ways to trade it. With the right mix of leverage, lot size and risk capital you can do a lot with a goal of 400 points a month. Most important is to set your goal according to your personality; whatever you believe you can achieve and doesn’t stress you out in the process is best.

Do you really need to take that trade?

Before I open a trade I ask myself this question every time without fail. It seems obvious but so is lowering the landing gear before landing yet some pilots still manage to land with the gear up. Consider your emotions before you take a trade. Are you tired? Are you angry? Did you miss a good trade and now desperate to make some pips? Have you made your weekly or monthly goals? If you have met your goals you don’t need to trade, period. If you can honestly answer this question with a “yes” then pull the trigger but if not, don’t put your capital at risk.

Be accountable to somebody other than yourself.

Rob Booker pitched this idea in a presentation I watched online and I believe it is the strongest action you can take to eliminate any propensity you have to over trade. Whoever you report to should have a basic understanding of your trading plan and be able to question you on each trade in a constructive setting. This is a full disclosure exercise so find somebody you can trust.

I report to my Wife every Friday morning with a print out of our account statement. We go through every trade while I explain what system I used, why I took the trade, what mistakes I made and what I could do better next time. We also discuss what I should be doing during the upcoming week if goals are already exceeded.

If knowing you need to explain why you put hard earned profit at risk for an unnecessary trade at the end of the week can’t keep you from pulling the trigger, nothing will.


10 Responses to “Does Your Forex Trading Plan Encourage You To Overtrade?”

  1. The Coin Operator on August 28th, 2008 3:18 pm

    I read this article with a huge smile across my face, reason being when i read this article it reminded me soo much of my trading and i only have my mentor to thank, i love him like a brother.

  2.   Over Trading and August Numbers by Ryan O’Keefe on August 29th, 2008 5:11 pm

    […] offers some techniques I use to avoid unnecessary trades. If you would like to read it I invite you to click here or visit […]

  3. MarcoA on September 1st, 2008 4:45 am

    Firstly, I find the idea of a ‘plan that causes you to overtrade’ to be a contradiction in terms. A real plan is a statistically tested response to the market. Timeframes should be specified in that tested plan, so you’re either trading the plan or not trading the plan. Secondly, this idea of goals makes no sense. You can’t decide when the market will move in sync with your method, therefore you can’t decide when it will payout. Equally when the market does move in your direction, why limit your upside to some predetermined goal. Let the market tell you when to close winners, all you have to do is consistently close losers.

  4. Forex Autopilot Review on September 1st, 2008 7:10 am

    I think this is a great post. If you use systems and strategies that encourage you to overtrade, you may end up worse off than if you didn’t.

  5. Danielle on September 2nd, 2008 8:01 am

    You made a very good point – so true! Some of the strategies do make us lose instead of profit! The plan is not everything in forex trading. Sometimes you have to turn your common sense on! 🙂

  6. Ryan O'Keefe on September 3rd, 2008 12:42 am

    MarcoA makes two good points and he is correct on both of them but a statistically based indicator system is very different from a discretionary trader using indicators or support and resistance.

    When I suggest setting a goal I am not advising you cut a winning trade short just because you have made that goal. Let the trade run and allow the market to take you out on a trailing stop.

    Setting a goal is simply a discipline tool to help a discretionary trader avoid giving back profits after they have gained them.

    Appreciate all the comments, best of luck in the markets!


  7. download forex software on September 3rd, 2008 8:46 am

    Why sometimes no matter what data comes out the market behavior does not have a definitive directions. For example an increase in interest rates does not necessarily turn the market upside but it could be more deeper down. I am really confused with all the fundamental part of the forex trading.

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  8. Michael on November 23rd, 2008 5:37 pm

    You cannot relay on your strategies any longer with today’s forex market. Things are different and you have to adopt to changes. Planning is great, but sometimes following the plan blindly will bring you nowhere.

  9. joe on February 20th, 2009 12:09 pm

    this is a great post..keep it up

  10. forexbrokers on October 24th, 2010 11:21 am

    Shouldn’t the plan keep you from overtrading? And in case your plan does the opposite then there is a problem with the plan! Go over it, find a flow and fix it 🙂 A plan should keep you disciplined and minimize the risks.

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