To trade or not to trade? Trading from home and having more time to watch the charts and market headlines doesn’t necessarily mean you have to take more setups.
For most traders, even the seasoned professionals, this is easier said than done. After all, forex price action can often be fast-paced and exciting, and the idea of missing out on a profitable setup is enough to keep traders on their toes all the time.
Market Wizards author Jack Schwager mentioned in an interview:
A scientific study confirmed that the challenge of doing nothing is just part of being human.
“It is common for traders who develop good methodologies that signal trades infrequently to take other trades that lack the appropriate criteria because of a need to do something.”
Through an experiment that involved letting people decide between being left alone with their thoughts or giving themselves a mild electric shock, the study concluded that “most people seem to prefer to be doing something rather than nothing, even if that something is negative.”
Here are some cases when you’re better off sitting tight and waiting on the sidelines instead:
1. You’re feeling bored and antsy.
If you’re finding that you have nothing left to do at home after completing your Netflix binge list and peeking in the refrigerator for the umpteenth time, opening a trade just for the heck of it isn’t really the best idea.Unless a setup meets your tried-and-tested criteria, you might just wind up risking hard-earned capital on a low probability play just to convince yourself that you’re being productive.
Still fidgety? Check out this list of 5 non-trading activities that can help your trading performance.
2. Your strategy isn’t appropriate for the current market environment.
Using a trend-catching strategy in a range-bound market is like pushing a square peg in a round hole. It just won’t fit and you’ll likely wind up hurting yourself if you force it.While taking advantage of different market opportunities is a huge part of becoming a consistently profitable trader, it’s equally important to have a clear plan of action before taking a setup.
This means setting entry and exit levels based on your strategy rules, as well as identifying beforehand the conditions that could invalidate your trade idea.
Not something that can be instantly done if you’re trading in an unfamiliar market environment, right?
3. You’re in a losing streak.
Ever heard of revenge trading? This usually happens when one is coming from a frustrating drawdown and attempts to make up for it by being more aggressive in the next set of trades.
This is dangerous for your account for two main reasons: First, it leads you to throw your trading discipline out the window and take losses personally. Second, it can be a potential lose-lose situation if your trade idea is wrong and your trading confidence also takes a hit.
Now that’s just digging a deeper hole for yourself, and you don’t want that.
4. There’s more uncertainty than you can handle.
Of course there is always some degree of uncertainty in trading, but there are cases wherein there’s just so much more than you’re used to.If you find yourself feeling out of sync with what’s moving the markets or unable to keep tabs on sentiment-changing headlines, you might be better off just observing price action for the meantime.
There’s no shame in admitting that you’re missing out on something or that you need to do a bit more research so that you can take more calculated trading risks.
Don’t worry, the market doesn’t run out of opportunities for you to grow your account!