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When Not to Trade Forex
Written by: PaxForex analytics dept - Thursday, 05 October 2017 0 comments
Currency exchange market is known as the market that is open 24 hours a day, but this doesn’t mean you have to be up all day and night. While the search for the ideal trading method or system takes up a large portion of a trader's research time, it may be worth noting that, while these are important elements of trading, there is one element which is arguably even more important - knowing when not to trade.
Most traders that have become successful will tell you that their best decisions do not revolve around when to trade, but rather when not to trade. Important thing to understand is that “thin” or inactive market not only offers less movement to profit on but also comes with higher spreads as the liquidity is lower. It must be noted that you can (in certain occasions) make money when there is little activity in the market, but the chances tend to be smaller and it is trickier.
The personal times that you shouldn’t trade can really be summed up as times when you are out of sync with your normal body rhythm. These are times where your emotions or environment can negatively affect the way you trade, and can seriously hamper the likelihood of a successful trade. Trading and staring at your charts all the time, bring out the worst fear and greed emotions out of people and you may end up losing all your money. We are all human. And if we follow the markets all the time, it is super easy to get emotional about our losses, and just
to prove that we are not a loser, get into another wrong trade.
Experienced traders know when to "sit on their hands." They realize that trading during times that do not suit their trading style can cut deeply into profits, or create a sizable deficit that will need to be regained. New traders, often in their enthusiasm, begin to trade more as losses mount. Instead of stepping back, they step into the market trying to make back losses. Trading when conditions warrant it is prudent, but it becomes a problem when a trader begins to try to find more trades to make up for losses. Often these trades are outside of the trading plan and are low-probability trades, based on hope and not on solid analysis.
It is important to be aware of what is occurring now in the market, but also to be able to transition our strategies to accommodate changing market conditions. This can be done by changing strategies to suit the current environment, or a longer or shorter time frame can be looked at to help us gauge whether we should be trading or not. Traders must know their trading plan and trading systems, and know under what type of conditions they perform well and perform poorly. When conditions arise where they are likely to perform poorly, traders must exercise discipline and cease trading.