3 Scenarios Even the Pros Don't Trade…but Do You?

11/24/2015 6:00 am EST

Focus: STRATEGIES

Rob Colville

Founder and CEO, The Lazy Trader

There are plenty of times when the best trade is no trade at all, writes Rob Colville, of TheLazyTrader.com, presenting common scenarios where retail traders—but not the pros—may be lured into taking some ill-advised trades.

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 don’t 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 don’t 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 don’t trade:   

Don’t Trade Unfavorable Market Conditions

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 volume and/or low volatility conditions prevail—like over the summer and holidays, for example—don’t trade riskier set-ups just to have some action or open positions to follow.

Amid low volume and volatility, markets mostly lack the kind of conviction needed to produce trend reversals or sustain momentum moves. In sideways or choppy markets, be even more committed to “following the rules” and allowing your strategy to dictate precisely what you do and don’t trade.

Furthermore—and this is an important point, because the temptation is often there—in difficult conditions, don’t 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 “Don’t 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. 

Don’t Trade at Less Than Your Best

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?

NEXT PAGE: Exacting Precision and the Three Times Not to Trade

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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 don’t 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, don’t 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 rare ability to turn off these stressors during market hours, again, consider not trading.

Don’t Trade with Money or Revenge in Mind

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, don’t trade. It’s dangerous and ill-advised, and in the long run, you’ll make more money if you don’t trade and avoid the damage that’s likely to result whenever your thoughts are misdirected coming in.

Also, don’t 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, don’t 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. 

Conclusion

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 don’t trade, consider the impact of your physical and emotional state as well and don’t 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 sometimes, it may be the best trading decision you can make.

By Rob Colville of TheLazyTrader.com

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