These trading setups are not just concentrated in the FOREX market but also applies to all markets where retail will carry over this line of thought and do the same with stocks, options, futures, whatever…
OVERTRADING WHEN MARKETS ARE DEAD OR BETWEEN EXCHANGE OPENS/CLOSES
Now this common mistake was very prevalent especially with FOREX traders who were new. I would usually start my day on the desk when US trading closed, and end my day when Europe markets woke up. During this time unless there was a reverberating shock that carried over into another trading session markets would usually level off and trade in tight ranges. This is where traders would take small losses and rack up commissions multiple times.
Let’s look at an example.
So let’s assume a new trader comes home from work. Usually the only markets that are open are
* NEW ZEALAND MARKET
* AUSTRALIAN MARKET
* JAPAN MARKET THEREAFTER
Now because the trader was working all day he is ready to put in orders and start his night trading. This in my opinion and what we saw with orders coming in was the worst time to trade. Why?
Spreads are wider and again trading was in a tight range. Now those who say well if I put on a trade and just hold it until I go to bed or until I wake up it will work itself out. But again, if you’re a new trader you’re prone to overtrade at these times because doubt arises with every candle move on a 5M chart or 1M chart. When this happens traders like compulsive gamblers will switch their mind from leaving the casino and flip their position sides multiple times when the market is still in a tight range. Don’t believe me? If you go to forexfactory.com and scroll to the bottom of the page during US close Japanese open you will see all these real time trades taking place and if you check their equity curves you will notice the majority of these traders are down substantially over short-time spans. Go check it out I’ll wait.
The above image example is a 1min chart of EUR/USD during US session close and Japanese Open. Notice its in a tight range. Most traders while its in this tight range will go long…go short..go long…go short all to capture microscopic moves which they're not factoring in spread which can be sometimes 1pip each way. Or commissions over spread if its with TD or other mainstream platforms.
SO WHAT SHOULD YOU DO THEN?
- Stop trading tight ranges like this! Because the constant churning going/long short in this range is only making the brokerages more money in spreads/commissions while you slowly decline in account balances.
- If you work consider swing trading where a trade can last several days and you have defined stops in place on the upside to take profit and downside to protect losses.
- Consider trading options on swing trading. Even though you’re at work stops can be setup as well to get you out of your contracts where it can be one shot or scaling out for max profits.
This was one of the biggest things we saw on the desk where traders would always do this and would wonder why their not making much but always were losing small amounts until they woke up and saw through this compounded mistake they were down -20% or more and a chunk of that was spread/commission costs.
I encourage those who make this first mistake but really cant trade more liquid session because of a full-time job to watch our webinar this Friday where one of our students will talk about how he swing trades options part-time. Hopefully it will broaden the spectrum for you in knowing there are other markets out there you can trade and still have success while at work.
FRIDAY WEBINAR 7:30PM EST: HOW I MADE 20K IN FEBRUARY TRADING PART TIME