Overtrade refers to the excessive buying and selling of digital currency that many traders and traders like to use this method to profit from cryptocurrency price fluctuations. However, ultimately high risk and lack of capital control can lead to huge losses. In simpler terms, having too many open positions and using too much capital in trades is called overtrading. Try to avoid over-trading and make logical trades using techniques and methods.
It is interesting to note that selling or overselling is different for each person depending on the trading method, and it is not possible for all traders to think about the exact number of the number of sales per day, week or month. Negotiating too much is a bad mental habit. This issue allows the trader to exceed the rules and limits for the number of transactions. Sometimes a trader makes good profits from few trades and since these profits are repeated quickly, he falls into the trap of too many trades.
What is overtrading?
A sole trader, whether self-employed or employed by a financial company, will have rules about how much risk they can take (including how many trades they can make). When this point is reached, it is illogical to continue the business. When a broker buys and sells large amounts of assets on behalf of investors, they trade only to earn a commission, which is prohibited under US securities law. Individual investors often begin overtrading and opening large positions after suffering significant losses. In fact, they may try to take profits in any way they can to compensate for their losses and return capital, or to take revenge on the market after losing a series of trades, which is often accompanied by an increase in the amount and number of trades. Evidence shows that the result of such actions is a poor record of the trader.
What are the causes of over-trading?
Overtrading can be the result of many factors, most of which are psychological. In the following, we will examine some of the factors that lead to overtrading.
Incorrect interpretation of market signals
One of the main reasons for overtrading is misinterpretation of market signals. Traders can often misread market data, which actually leads to bad trading opportunities. For example, a sudden rise in the price of Bitcoin can be seen as a buying opportunity, even if the price has reached a short-term limit and is about to correct.
Psychological factors
Overtrading can also be caused by psychological reasons. Fear of missing out on trading (FOMO), the desire for high returns and the excitement of trading can lead investors to overestimate.
More money and easier access to business
The proliferation of online trading platforms has made it easier than ever for people to trade, often leading to over-trading. Moreover, too much capital can also lead to excessive trading, as investors sometimes feel the need to invest their funds continuously instead of waiting for the right opportunity.
Why is Overtrade addictive?
Day trading is about the brain for the same reason that gambling is addictive. When a day trader makes a profit, or even gets excited about a possible profit, the brain releases feel-good neurochemicals such as dopamine and serotonin. By day trading and profiting from this market, over time, the brain becomes addicted to this type of stimulation to produce pleasure. The brain wants to trade financial instruments with excitement, euphoria and euphoria. Brain damage can take weeks, months or years.
There are psychological and genetic factors that contribute to excessive trading addiction. For example, mental health problems or a history of excessive relationships can put you at increased risk for addiction. Some traders are initially new and eager and want to make a lot of profit by trading more in this market, which is of course risky. Finally, due to high volume of transactions and high fees and lack of proper strategy, they suffer losses. Many amateur traders jump into the market without any training and believe that there is a better chance of making a large profit. But this is a common trap that many amateur traders fall into. However, you should not get used to it and you should be familiar with the basic principles of this market and learn its basic training.
Solutions to prevent overtrading
- Discussion and planning: Being smart about trading and having a proper plan can help reduce over-trading.
- risk management: Having a risk management system can reduce the risks of overtrading.
- Teaching and learning: Knowledge and experience can help traders make better decisions and avoid over-trading.
- To avoid overtrading, traders should focus on their strategies, set reasonable goals, and rely on analysis and research rather than emotional and irrational actions.
A book for beginners about overtrade
A book suitable for beginners in overtrading, due to the complexity and specialization of this market, should be written in simple language and explain the basic terms and concepts well. In this regard, the book “Options Trading for Beginners” written by David Jackson is considered a good book for beginners in trading as well. In this book, the author tries to teach beginners the importance of overtrading by describing the main concepts used, tools available in the market, successful trading strategies and risk management methods. The book is written in simple language and explains the concepts with practical explanations and illustrative diagrams, which is very useful for beginners in business.
the last word
Overtrading occurs when traders trade more than is reasonable and beyond their financial means, which can lead to heavy losses. This phenomenon can be caused by many factors, such as greed, fear and lack of knowledge and experience. and inability to control emotions. The reasons for overtrading can be greed, fear, lack of knowledge and experience, lack of control over emotions, lack of a definite plan and strategy. The consequences of overtrading include increased costs, increased risk, loss of capital and stress. In terms of prevention, important things can be mentioned, such as setting realistic goals, developing a business plan, risk management, continuous education and learning, emotional control, market analysis and setting loss limits. By following the above, traders can reduce the risk of overtrading and be on their way to becoming a successful trader.
