It is each and every forex trader’s dream to become consistently profitable. However, I think all of us can agree that reaching that goal is easier said than done. Most of us perceive that keeping a cool head in the midst of a large drawdown is the key to becoming consistently profitable.

I also think that keeping track of your forex performance and emotions when you’re winning is just as important. You wouldn’t want to lose your mojo while you’re on a winning streak, would you?

If you answered “No,” you better keep yourself from becoming overconfident. After all, there’s nothing like a string of winners to make a trader feel like he or she can’t make mistakes.

Overconfidence is usually characterized by an exaggerated belief in one’s own trading skills. Now, don’t get me wrong. Confidence is critical in becoming a successful trader. However, it’s one thing to believe that your trades can reel you in a handful of pips and it’s another to think that you know everything about the markets and that there’s no way for you to lose.

Overconfident traders usually get in trouble by trading larger position sizes than they’re used to, jumping in again in the same direction after getting stopped out, or overtrading.

If that just hit a nerve, don’t worry. You’re not the only one guilty of being overconfident. So how do you keep yourself from doing so? Here are a few of my suggestions:

The first step is awareness. You should ask yourself, “What factors can invalidate my trade idea?” or “What will I do when my trade goes against me?” From there, consider a few contingency plans. Through this exercise of making yourself aware that your seemingly-fail-proof trade setups can still end up as losers, you become more careful in managing your trade.

My second advice is to avoid being too eager in entering trades. As I mentioned, overtrading is one of the signs of overconfidence. Check your trading plan before you enter a trade. Does price action meet your entry criteria? If not, don’t just jump in because you have this “gut feeling” that that setup is gonna end up as a winner like your previous trades.

It doesn’t stop at entry criteria though. Just like how you would set a maximum drawdown stop whenever you’re in a losing streak, setting a cap for your losses is also as important as when you’re on a roll.

When you start losing after winning a few trades in a row, there’s a tendency for you to tell yourself that it’s okay because you still have a lot of money anyway. Although this might be true, the danger is that you may become lenient with your execution performance.

If you’re not careful, you might end up giving yourself a free pass on one loss after another. And before you know it, bam! You’ve already lost all your gains!

So be sure to determine how much of your winnings you are willing to lose. Let’s say you have already lost half of your most recent 3% gain, you may already want to take a little time off trading, re-consider your approach, and examine what you’ve been doing differently.

Ultimately, it all goes back to your trading plan. The best way to keep yourself from being overconfident is to establish a detailed trading plan and STICK TO IT!

Winning feels good, I know. Most of the time, it makes us feel like we’re invincible; that we can get away with a win on every trade. However, once you start to have this kind of thinking, that’s when you become most vulnerable to careless trading and your profits could evaporate in an instant.

Keep in mind that your goal as a trader is to become consistently profitable. So build on your wins by keeping your ego in check!



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Editors’ Picks

EUR/USD stays weak near 1.1850 after dismal German ZEW data

EUR/USD stays weak near 1.1850 after dismal German ZEW data

EUR/USD remains in the red near 1.1850 in the European session on Tuesday. A broad US Dollar bullish consolidation combined with a softer risk tone keep the pair undermined alongside downbeat German ZEW sentiment readings for February. 

GBP/USD holds losees near 1.3600 after weak UK jobs report

GBP/USD holds losees near 1.3600 after weak UK jobs report

GBP/USD is holding moderate losses near the 1.3600 level in Tuesday's European trading. The United Kingdom employment data suggested worsening labor market conditions, bolstering bets for a BoE interest rate cut next month. This narrative keeps the Pound Sterling under bearish pressure. 

USD/JPY slides further below 153.00; eyes 200-day EMA amid a firmer JPY

USD/JPY slides further below 153.00; eyes 200-day EMA amid a firmer JPY

The USD/JPY pair meets with a fresh supply on Tuesday and slides further below the 153.00 mark heading into the European session, reversing a major part of the previous day's positive move. Spot prices, however, manage to hold above the 200-day Exponential Moving Average support, around the 152.50 region, preserving a tentative bullish bias despite a shallow cushion.


Editors’ Picks

EUR/USD stays weak near 1.1850 after dismal German ZEW data

EUR/USD stays weak near 1.1850 after dismal German ZEW data

EUR/USD remains in the red near 1.1850 in the European session on Tuesday. A broad US Dollar bullish consolidation combined with a softer risk tone keep the pair undermined alongside downbeat German ZEW sentiment readings for February. 

GBP/USD holds losees near 1.3600 after weak UK jobs report

GBP/USD holds losees near 1.3600 after weak UK jobs report

GBP/USD is holding moderate losses near the 1.3600 level in Tuesday's European trading. The United Kingdom employment data suggested worsening labor market conditions, bolstering bets for a BoE interest rate cut next month. This narrative keeps the Pound Sterling under bearish pressure. 

Gold pares intraday losses; keeps the red above $4,900 amid receding safe-haven demand

Gold pares intraday losses; keeps the red above $4,900 amid receding safe-haven demand

Gold (XAU/USD) attracts some follow-through selling for the second straight day and dives to over a one-week low, around the $4,858 area, heading into the European session on Tuesday. 

Canada CPI expected to show sticky inflation in January, still above BoC’s target

Canada CPI expected to show sticky inflation in January, still above BoC’s target

Economists see the headline CPI rising by 2.4% in a year to January, still above the BoC’s target and matching December’s increase. On a monthly basis, prices are expected to rise by 0.1%.

UK jobs market weakens, bolstering rate cut hopes

UK jobs market weakens, bolstering rate cut hopes

In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months. 

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