Lesson 37 – When & when not to trade, for Forex Traders
So far, most of the information we’ve presented to you so far, and also what other people will show you on the internet, is how to take advantage of opportunities in the market and make trades on signals that are favorable.
While this is extremely important in learning how to make trades, it’s also equally important to know when to NOT make trades and withdraw from the market.
This could be to do macroeconomic events that you have no control over, or even just personal reasons. At these points in time, it’s sometimes best to just call it a day and wait for a better day where you have more control.
Personal reasons that would interfere with trading
Here are some of the most common personal reasons to avoid trading, They might seem extremely obvious, but even so, a lot of traders seem to forget these and just bulldoze onwards, making bad trades and losing money.
Trading during serious emotional periods
Like any other performance activity, you can think of, you need to be of a clear mind and cool head when constructing trades.
So if you’re experiencing a lot of pressure from family problems or even just a break-up for example, it might be best to take a break from trading till you’re feeling in tip-top shape again with no pressure.
Trading when you’re tired or stressed
If you notice that you’re in any way feeling tired or stressed, then it might be better to just take a break and have a nap or just go to sleep.
When you’re not in the best state, your performance and decision will be sub-optimal and you won’t be showing yourself the best performance you’re capable of.
If you’re still determined to invest that time into trading rather than just rest, then keep to researching and informing yourself in making notes and strategies.
Later on, once you’re feeling well-rested and without any stress, you can then benefit from your further research will a cool head to make good trades.
Having too many distractions
When you are trading it’s absolutely crucial to be completely focused. You need this in order to always stay on top of your active positions and how the market is behaving and reacting to different events.
If you’re constantly distracted, you will very likely miss things and not be in complete control of what’s going on and will learn very little.
Trading at work
This follows on from the previous point. If you’re at work, you will probably not be focused on your trading and will have to deal with multiple things at the same time.
You will be very stressed and won’t perform well in either your trading or your job. In the interest of keeping your job and performing well in trading, try to trade outside of your work time.
Later on, if your trading is so successful that it can become your main occupation, then that’s a different situation completely if it then actually becomes your main job.
Trading again and again after heavy/continuous losses
Even if you think you’re the master of coolness, I can guarantee you that you won’t trade with a cool head after suffering a big loss or after hitting multiple smaller losses again and again.
At this point, take a step back from your trading platform and come back on a different day after you’ve calmed down and cooled off from the hit.
What’s actually best to do, is to take the take to do a post-trade analysis to see what exactly went wrong, so you can learn from it and avoid making that mistake in the future.
Every failure is a step closer to success
Everything is a learning process!
Fundamental and technical reasons to avoid trading
These reasons relate to situations that are completely out of your control, but all the same, you should be fully aware of them in order to always stay on the right side of trades or even withdraw from trading completely.
A lot of these events can cause huge shifts and volatility in the market that will cause large price movements that are unpredictable and are often not worth the risk unless you have some sort of inside information edge.
Here are some examples of events where it’s often just better to just sit and watch it unfold before you enter when things have calmed down more.
Political election/referendum results
Pretty obvious that this is an absolutely massive event to shake markets and prices. Make sure to monitor key dates and anticipate large price movements on and around these dates.
Economic and regulatory news events
News relating to industries and/or commodities can often greatly affect the price of related currencies that are tied to them. Make sure to keep any eye out on even the stock market or major key companies that greatly influence the state of a country and its currency.
As long as you monitor the news that relates to your traded currencies and understand their impact, you should do well.
Key speech and budget announcements
Important speeches relating to policy and/or budget changes often really affect the market. A hugely important example would be central banks when they announce interest rate changes.
Stay on top of the announcement dates and the volatility in the days leading up to them so you can try to avoid the complete uncertainty.
It’s better to trade with a clear strategy and informed reasoning rather than just pure speculation.
When markets open or close, large rushes of trading volume and volatility start to flow in as traders rapidly try to open or close their positions. This can cause unpredictable price movements.
While of course, this increased volatility can bring opportunity for you to profit off of these large swings, be cautious as it can be highly unpredictable.
Since there are overlapping market hours across the world, the market is basically open 24 hours a day, five days a week. This means you have a massive number of chances to take in placing trades and exploiting the market.
This constant access is both good and bad. The reason why it can be bad is overtrading.
Overtrading is one of the biggest reasons a lot of traders can become unprofitable.
They constantly jump at every single opportunity or signal that gives any hit of a trading possibility to exploit. You definitely should not be doing this.
You will be a lot more successful if you wait till you have a very clear and obvious scenario where all of your indicators and informed research are pointing to the same conclusion and you are confident you are making the right choice.
This way, you will be a lot more successful in your trades. Remember, keep to your trading plan and strategies, stay objective, don’t chase your losses, and learn from your mistakes.