As we have discussed before, this discussion forum is to explore the psychology behind the success or failure to trade successfully. As most traders with any experience know, the ability to “call “ the market is relatively easy in comparison to getting properly positioned within the market, and taking the most amount of money from your observation; that is where the real work of lasting trading success really lies. All of us have found the actual bottom or top of a significant move but failed to capitalize on that opportunity for one reason or another.

This month, I would like to address one of the more common trading errors. Everyone has made the error of overtrading at some point and many continue to make this error despite knowing they have this problem. Just knowing you have a propensity for a trading problem is half the battle but more importantly, you need skills and tools to correct your trading error. One of the more critical skills to develop in my view is to stop and confront the problem of overtrading.

Overtrading is a symptom of a deeper psychological problem which I like to call attachment to results. All traders have a certain degree of results they are pursuing in the markets; that is not the problem. The markets exist to exploit inequalities (real or imagined) in the supply and demand of something or financial instruments. It is a good thing to see an opportunity and assume the risk for the potential that is there. Once that action has been taken the only question is whether or not that inequality you perceived is an actual event that is unfolding over time. Between the time you execute for an entry and the time you liquidate for an exit; the markets will be moving. That movement is where the issue of attachment to results translates into your personal results.Attachment to results can actually be expressed two ways depending on your personal psychology and trade method. The first way is holding losers and the other way is overtrading. We will discuss the issue of holding losses at a later time but the net effect on your equity is the same whether your problem is holding losses too long or you overtrade. Attachment to you results is the bedrock problem behind either overtrading or holding losses. In the case of overtrading, it represents the psychological need for immediate results (or positive results) without the corresponding willingness to allow time to pass. I think it is safe to say that a certain amount of time is required for any trading style to generate a gain and the unwillingness to let the required amount of time to pass comes out in the markets as constant execution over some timeframe.

If you use an hourly timeframe to pick your points of entry it is safe to assume that more than one hour must pass in order to determine if your executed trade has potential as you see it. Should the market move against your position that is to be expected, it is unreasonable to assume you will “buy the low” or “sell the high” every time you trade. As the market moves, if you are attached to your results, that movement means something to you. It is personally helping or hurting your equity. As your account balance changes from open trade equity, your focus narrows down to how this is affecting you personally. Most traders with this problem now seem to forget the high degree of study, preparation and thought they invested into picking that spot to execute. For some reason, the long-term fundamentals are forgotten, the technical studies are re-evaluated in real time, the protective stop order might be moved and the limit order to take the gain is moved closer to the market. Or any number of things. Then this trader executes to exit the market. Prices remain near their entry or advance. Attachment to results now says “You are missing it! You were right!” and this trader now executes again for an entry. As prices return to the first entry price, this trader again has a small open-trade loss; again the trader’s attachment says the trade is not going to work.

This process may repeat itself several times over a short period of time, especially if the market is advancing in the intended direction. The problem is not the market price action; the problem is the attachment to results imposed by the trader creating an urge to action that is not consistent with normal ebb and flow of most market action. The trader has failed to allow time to pass and let the market do what it is going to do. During a major price advance or decline that was properly observed, this trader has small gains or even net losses when his just sitting tight for a period of time would have resulted in a nice gain.Solving this problem is a factor of learning patience as well as adapting your thinking to better fit with the market you trade.

I have observed from working with many developing traders that if they have the problem of overtrading, the simplest solution is to impose a new set of rules on their execution that allows time to pass. I have a very common sense based method that I would encourage you to try for yourself. Simply turn your screen off; the assumption here is that the market will do what it will do whether you watch it or not. The problem is not the market price action, the problem is attaching meaning to that action and executing. If you can’t see the price action, you can’t execute. So the first thing we do is impose the rule: After you execute you have to turn the screen off for at least one bar of your time frame as a minimum.In most cases, several bars are needed to either confirm or deny a trade potential is developing so often the trader must sit in front of a dark screen for several hours. The market is still moving, but in this case, the stop is also still where it was originally placed, the limit is still where it was placed and the trader cannot reevaluate the trade nor do anything except wait. During this time I also require the trader to write out in as much detail as possible exactly his hypothesis for the trade. This keeps the trader focused on the critical thought required to do the trade as opposed to how the tic-by-tic price action is affecting his equity. After enough time, this self-imposed isolation develops into patience to let the trade work. At some point, the trader will no longer need to be “in the dark” and he has the skill to simply sit still and let the trade work.

Next month we will talk more about attachment to results as it comes out when you hold losing positions. In the meantime, if you have a tendency to overtrade; try this method. I think you will be surprised at how fast you learn to let your trades work.

At a gathering of investment bank trainees in suburban New York last night, I was asked my opinion of the most common problem among traders. My answer was neither fear nor greed. It was overconfidence.

Studies in behavioral finance find that about 3/4 of all traders rate their prowess as "above average", despite the obvious reality that only half of us are better than the other half. This overconfidence, moreover, affects actual trading performance. Research by Terence Odean and colleagues finds that overconfidence affects frequency of trading, which in turn contributes to poor trading results. In one study of online traders, the group of traders favored high beta (volatile) small cap companies and tended to not diversify their portfolios. Their actual trading results slightly beat the small cap index, but after trading costs were factored in, they significantly underperformed the index. The most frequent traders were the ones who underperformed the index by the greatest margin.

One of my favorite studies of overconfidence came from the London Business School. Traders were shown price patterns and asked to figure out the market's next direction and indicate their confidence in their prediction. The price patterns were generated entirely randomly. The traders with the highest confidence in their predictions traded the most frequently and incurred the greatest losses. A completely random trader--50% right, 50% wrong--who trades once a day will have runs of five consecutive winners about six times during a year. It is difficult to not think you have the hot hand after such a string, become overconfident, and raise your trading size. Of course, the random trader will have an equal number of strings of losers. That is likely to burst confidence and lead the trader to cut trading size--assuming, of course, that he's still in the game at that point.Is it any wonder that traders seek help from coaches and psychologists? Few of those coaches and psychologists, however, will tell the trader the truth: You're trading random patterns and your problem is overconfidence in them.

If you want to find an appreciable number of profitable trades when trading Forex you need to enter the forex market at the best period of time. This means you should enter when the activity, the volume of transactions, is the highest. All experienced traders focus on the hours when the currency markets tend to make their biggest moves, i.e., during the big market overlaps, which therefore, are usually the best times to trade.

Forex markets are open worldwide with the following schedule:
* New York Market trade times: 8am-4pm EST
* London Market trade times: 2am-12Noon EST
* Great Britain Market trade times: 3am-11am EST
* Tokyo Market trade times: 8pm-4am EST
* Australia Market trade times: 7pm-3am ESTForex markets have also these timing characteristics:
* Forex Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America
* The US & UK account for more than 50% of the market transactions
* Forex Major markets: London, New York, Tokyo
* Nearly two-thirds of NY activity occurs in the morning hours while European markets are open.

From this timing facts, it is evident that at any given time, somebody somewhere in the world is buying and selling currencies. As one market closes a different market opens. Business hours overlap, and the exchange continues as day becomes night and night becomes day.

The great liquidity of Forex, combined with the fact that's traded 5.5 days a week around the world, offers every trader an exceptional independence and choices to trade Forex when you want to and not when the market wants you to do it. It’s a facts that trades always develop with relatively the same frequency, regardless of time. As long as the Forex market is open, there is about the same probability that you will find a trade, whenever your look for it.

Forex market volume of transactions remains high during the whole day, but peaks highest when the Asian market(including Australia & New Zealand), the European market and the U.S. market are open simultaneously. And these are the best trading hours you must target in order to find the highest possible amount of profitable trades.

There is one aspect that is considered as one of the best advantages of FOREX Trading. This is related to the amount of money you need to place a trade, this is known as "margin", and in short, this is all that can be lost in a the case you had a bad trade.

I state it like this because, even though I know with proper self-taught education you're NOT going to lose as much as you win anyway, I want you to know that despite the super-high leverage associated with FOREX trading (200:1 is possible; meaning that if you put up $1 the trading vendor will allow you to trade like you really have $200), it's still arguably less risky than futures (commodities) trading. And, forget stocks, you'll never get this type of LEVERAGE in the equities market.

Futures markets are often prone to sudden and dramatic moves, against which you can not protect yourself, even by trading with protective stops. Your position may be liquidated at a loss, and you’ll be liable for any resulting deficit in the account. But because of the FX markets deep liquidity and 24-hour, continuous trading, dangerous trading gaps and limit moves are eliminated. Orders are executed quickly, without slippage or partial fills. And finally, there are no margin calls -- for your protection, ALL our recommended brokers will automatically close out some or all of your open positions if your account equity falls below the level required to hold the positions. Think of this as a final, automatic stop, always working on your behalf to prevent a debit balance. In fact, if you pick from our list of recommended brokers, we guarantee that you will never lose more than you have in your FOREX account.