Here’s a brief story about why the best trading advice I’ve heard in a while actually came right after some of the worst! You see, while struggling to explain the reasons for his own success, a fellow professional trader said that he had just been trading long enough, and eventually, “something just clicked.” Like anyone else who saw it, I thought “Gee, thanks!” That is, until he said what he said immediately afterwards:
“Honestly, the biggest turning point for me in my trading was actually figuring out the different circumstances when I do not trade; not so much learning when I do.”
Now that’s some truly excellent insight that traders won’t get through mainstream trading education. So, if you’re like the majority and tend to focus on finding more patterns and set-ups, here’s something to think about: You can likely improve your profitability more over the long term by qualifying times when you do not trade than by trying to somehow squeeze out more profit from when you do. So with that in mind, here are some distinct times when it’s actually best that you do not trade:
The old saying goes, “You can’t draw blood from a stone,” and likewise, you can’t make quality trading opportunities exist where there are none. So when low-volatility conditions prevail—much like right now—do not trade riskier set-ups just to have some “action,” or open positions to follow.
With volume and volatility this low, the forex market mostly lacks the kind of conviction needed to produce trend reversals or sustain momentum moves. In such choppy markets, be even more committed to “following the rules” and allowing your strategy to dictate precisely what you do and do not trade.
Furthermore—and this is an important point, because the temptation is often there—in difficult conditions, do not trade other markets and currency pairs without first putting in the time to learn about them and test the merits of your strategy. Notice that we didn’t say do not trade them, period? That’s because you may find that you can successfully apply your strategy and even switch to these other markets as needed…just be sure that you’ve done your homework before you start!
To earn the title of “trader,” do you feel obligated to be in the markets every day? And, as if you took a sworn oath, do you try to do that in good times and bad, and in sickness and in health?
Above all else, a trader’s job is to apply their strategy with exacting precision each session they do trade, not to simply trade every one. So while it seems only natural to most traders to look at the charts each morning, and perhaps consider the news and economic data, it’s their own physical and mental conditioning that’s every bit as important to their bottom line. With that, there can be plenty of times when it’s best that we do not trade at all, and these are just some of those times:
Illness: Are you feeling drowsy or under the weather, lacking sleep, or on any medication that can adversely impact your level of awareness or concentration? In a compromised state, are you more likely to miss valid trade-set-ups, trade sub-par ones, or act emotionally or out of sorts? If so, do not trade.
Personal Duress: Are you under pressure in other areas of life, like work, family, or finances? Have you just had an argument with your spouse—perhaps about money—or is your confidence shaken in general? Unless you have the ability to “turn off” these stresses during market hours, again, do not trade.
Most of us think, worry, or even argue about money on a regular basis. From the mortgage and car payments, to the kids’ clothes and education, to the upcoming family vacation, it can really make you feel like there’s a lot riding on every trade—which is precisely why you only trade discretionary funds.
If ever you find yourself coming into the markets feeling like you “need” to make money, though, or that winning—as opposed to simply executing your strategy—is your purpose for the day, by all means, do not trade. It’s dangerous and ill-advised, and in the long run, you’ll make more money if you do not trade and avoid the damage that’s likely to result from your thoughts being misdirected coming in.
See related: Good Thoughts to Have before You Start Trading
Also, do not trade in hopes of recovering a loss or exacting “revenge” on the markets for a trade that went against you before. Even the pros take time off following a tough loss or a string of losing trades. Where newer traders often get in trouble, though, is by betting bigger or trading the next thing they see in hopes of drawing back even or getting ahead, and this is how losses and entire trading accounts can spiral out of control. Simply said, do not trade if you’re mad at yourself, or mad at the market, for something that’s beyond your control and can’t be taken back now.
There’s no glory in set-ups or opportunities you don’t trade, and yet, your long-term profitability depends on your ability to be disciplined and only trade when the odds of success are in your favor…but that’s not entirely dependent upon the markets; it’s up to you, too!
More than just assessing the markets and analyzing chart patterns to determine which set-ups you do and do not trade, consider the impact of your physical and emotional state as well, and do not trade for the sake of trading, or because you think you “have to,” or simply because “that’s what traders do.” Make sure not trading is not only an available option, but also an acceptable outcome, because as you can see, sometimes it may be the best trading decision you can make.