When not to trade – Situations which cause trading errors and mistakes
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This article covers the situations which are not related to the market or the system, and yet affect trading. These are the potential contexts in which you shouldn’t really trade, because you will most likely make a trading error and lose money. It is part of my strategy series, for both new as well as more experienced traders.
A strategy for trades and trading activities management in case of various situations that may occur in life should be a part of any trading plan. Or at least you should have a general protocol on what to do in different situations, to avoid trading under emotions and making mistakes. Some of the examples below may seem obvious, but I experienced all of them, and I can tell you that nothing was obvious when I was in the middle of them. Only later, when I analyzed everything later on, it became clear what had happened and how it had affected trading. It took me time to learn how to put these situations on my radar and to avoid trading if a red flag pops up.
All the situations described below have one thing in common – it is not worth trading if any of them occurs, since the probability of making bad trading decisions is high. From a perspective, I can say that even if you lose a trading day or two, you’ll be much better off skipping those few new trades and giving yourself time. Time to solve, fix, and do whatever is needed. Or just do nothing, give yourself space, and let things play out. Trading is about being in the flow, being calm with yourself, feeling the market, and being confident while executing trades. You cannot be that if something else occupies your mind, feelings, or emotions.
Many traders fail because they don’t care about trading psychology and underestimate the role of mind and emotions in trading. If I could give one piece of advice to beginner traders, it would be to work on your mind while you learn trading at least as hard as you work on mastering your trading strategy or system. This way you can become profitable quicker and have your mind work to your advantage, and not against you.
Situations that might result in trading errors:
When you have an argument with your partner/ husband / wife/ girlfriend or boyfriend
This is probably my favorite one. You get into an argument, stop fighting and run to your trading platform to release some steam 😀 . A very bad idea. Even if that’s not the thing you think you are doing, or you are convinced that you are controlling yourself (I thought so), believe me, you are not able to make a good trade in such a state of mind. If only you gave yourself time and space to feel into yourself, you would discover, that you are in a state of tunnel vision and miss the big picture. This is not a state of mind for trading and conscious decision-making! It is a state of mind that can only lead to common trading mistakes.
Nothing can hurt us more than situations related to our beloved ones, so any arguments and bad emotions in this sphere require special attention. Currently, if we have any misunderstanding or an argument with my wife (however, these don’t happen too often), I have a procedure that I close my computer at once, and I don’t open it until we make up, hug and kiss. Only then, and after a relaxation, when I feel I’m in a good shape again, I get back to the market and open new trades.
When your partner is stressed or feels bad
This is another interesting situation. It is not related directly to your own state, but let’s be honest – you feel that your partner is not okey, and there is no way you can fence off these feelings. It may seem that you are calm, control your emotions, and can make trading decisions. So, there is no problem to at least supervise the open trades you have from time to time, while you talk to your partner and try to help him or her. But it is nothing more than chasing a potential profit. I had it a few times, and it usually ended with a trading error and a lost trade. Taking profit, moving stop-loss to zero, or hedging your open positions is max you can do in such a situation.
When you get some bad or stressful news
I don’t mean the news from the world of politics or some other type of information that market participants react nervously to, but the news related to yourself or your beloved ones. This is never neutral, and it always affects you one way or another. As a result, it also affects your trading and the decisions you take. Trading decisions based on stress will almost always result in losses. Calming down and relaxing is the minimum you can do, but taking a break from trading for a day might also be good. If you have already started trading and have opened some positions, taking profit, moving stop-loss to zero or hedging open trades is a much better move than insisting on closing your trading day as planned.
When you are stressed
When you are stressed, stop trading. Period. Calm down and relax first. If you miss a setup, another will come. It is very tempting to just open a trade, to not miss an opportunity, and then relax… This could work in theory. In practice, it will most certainly lead you into making trading errors. There are many relaxation and meditation techniques that can help you deal with the symptoms of stress. Of course it is always best to identify the cause of your stress and deal with, before you can come back on the markets. When the situation is not very serious, sometimes it’s just enough to take a deep breath ten times. You may also want to do some jogging or other exercises. It all depends on the situation, but no matter what happens, you need to make sure you are free from stress and calm before you start trading again. Moreover, you need to feel good and be at peace with yourself and your emotions. That will save you money and frustration. Trading opportunities are available on the market around the clock, so there is no need to chase every signal or entry point.
When you are in fear
This is a subtle one, since most adults developed cover-up mechanisms for fear. After all, we are all taught to be brave and tough. However, being in fear ranks among my top situations, in which you should not trade. In such a state, I mean in in fear, you will most likely make trading errors and lose a trade. Fear acts like a poison which will always lead to analysis, paralysis or panic. So, if you feel fear, find out what you fear. Get professional help. Name it, and work with it, before you start trading. Many fears are completely irrational, but they operate in the background and have a huge influence on our actions. I had not realized that until I started my coaching session that dealt with fears. Once activated, fears will influence your every single action, so have them on the radar and at least relax and breathe deeply for a couple of minutes, before you get back on the market or start trading. But the best way is to confront your fear, see what causes it and realize what the worst-case scenario might be. It usually is not as bad as it seems, and there is actually nothing we couldn’t really deal with. But fear is a self-inflating feeling that creates various, often dramatic scenarios. And however unreal they might seem to the outsiders, to the person that is in fear, they seem very realistic.
When you are in emotions
Emotions are a very crucial element of our being. No one can really control them (they will always work in the background), but you can learn how to name and acknowledge them, and be at peace with them. Without it, no conscious decision-making in a calm and focused state of mind will be possible. There are no bad or good emotions. They are all neutral, as they just inform you about your current state. If you are in the hurrah-optimistic mode and open a new position, you can make similar scale trading errors and damages to your trading account as if you were depressed. Only a calm state of mind allows one to be in the flow, be in tune with the market, and do the right things at the right time while trading. Emotions can be very intense. If you ignore them, they will intensify. If you try to control them, they will eventually explode in the moment you least expect. One of the things I learned during my coaching sessions, is name (identify) and accept my emotions. React to their calls. Laugh, cry, shout, jump, do whatever I need to offload the emotions, and then look into the causes or reasons behind them. They never come from nowhere. They are like symptoms, and they always carry some message. Reading and working with the message (the underlying cause), will help you return to the state you desire to be in – at peace with yourself and your emotions.
When you are sick or ill
No one likes to be sick or ill. You have a feeling that you’re wasting time. It’s so tempting to take a pill, drink a coffee and keep going. There are loads of exciting trades and much money to be made after all! Well, this is not the way it works. The only result I kept having, when I ignored my health was that I felt worse. I never made serious trading errors or hurt my trading account when I was sick or ill, but I also never made any money. It was a waste of time and energy. But I was new to trading and excited about every minute spent on the market. I also didn’t want to miss opportunities. Now I know it was stupid. You will be much better off, if you give your yourself and your body time and space to regenerate. Just realize, that if you were employed at some company, you would probably go on a sick leave. Now, that you are a trader and a boss to yourself, you also have to take tough decisions, and sometimes simply send yourself to bed 🙂 .
When you are tired
When you are tired, your perception is weaker (much weaker), and it is much easier to lose your emotional balance and get angry, stressed or frustrated. But you need a good perception and a proper emotional balance to make a good trade and make a profit. So, if you are tired, it is much better to take some rest or go to sleep, than pretend that you can control your body. From my experience, whenever I insisted on trading when I was tired, I ended up chasing a draw-down, and finished the day at break-even. As with the sick/ill scenario, it is simply not worth it.
When have to do something stressful or unpleasant
If you have something unpleasant to do, I don’t know, for example do some paperwork that is due, eat this frog first, and get back to trading when you are done. Otherwise, you will be thinking about this in the background, and your feelings and emotions related to these thoughts will influence your trading. Postponing the stressful and unpleasant in such a situation would be an intellectual decision, followed by rationalizing, that you’ll benefit from the trading day first, and then do the ugly stuff. Benefit? Really? It might work, if you had a job, but trading is different. Technically, you might be able to trade, but you need to be in a good emotional state to make a profit. So, even if you would miss the best hours of your trading day, it is better to do the unpleasant stuff first and be relieved. Then you can relax and start trading.
When you are doing something else
When you are trading – trade. When you are doing something else – do something else. Never multitask. Trading is difficult enough and has enough data and buzz to filter through on its own, so you don’t need to add additional layers of factors and impulses into that equation. You will be much better off if you either trade or do whatever other activity you have, and trade after you are done. This is a good idea especially if you can’t stop thinking about that very thing you are supposed to do.
I remember I was building a wooden cabin on the edge of a forest – just a hobby thing. I was really into it. So I took my laptop with me and was looking on the market from time to time while sawing and fixing wooden beams. Result? I missed most of the entries, and I found myself chasing the market… A very bad idea… So I gave up the concept and decided to go on with the building only after I’m done with trading for the day. Treat trading seriously. If you want money, focus on earning this money. When you want to do something else, do something else. But don’t let greed, fear, or guilt tell you to trade while being engaged in some other activity.
When you are preoccupied with something else
Having an exam the next day, leaving on a long-expected trip, or picking up a brand new car in the afternoon – no matter what it is you might be preoccupied with, you will not be fully into trading. In such a state of mind, trading errors are just a matter of time. If you know how to relax or meditate, and get back in sync with the market, this is one of those occasions you can consciously decide to come back into the trading process, leaving other things on the side. However, it might be that you actually want to pack or check your suitcase, and immerse into that other process or experience. Don’t force yourself into trading then. If you are traveling – travel, when you are preparing for an exam – do that, and enjoy the process. I never made any money when I was trading while not being fully in the process.
Not trading can improve your overall results
To achieve good results in trading, you have to be at peace with yourself and in sync with the market. You have to make decisions based on this what you really see, and not what you think you see or would like to see in the minutes you have left available for trading. Respect the market and respect yourself. The market will still be there, once you are done with whatever you have to do first to be able to trade. If you trade long time frames, your opportunity will be still there – it does not disappear that quickly. If you trade short time frames, there are more trading opportunities coming soon, even if you missed an entry. And if your trading system or trading strategy rarely generates signals, then just add another system to your portfolio. Running after a trade is a common mistake beginner traders make.
Eliminate trading in situations that might lead to common trading mistakes and errors, stay in the flow, and do the right things at the right time. This strategy will for sure improve your trading results, reduce your risk and increase the safety of your trading capital, and last but not least, increase money flow into your trading account 🙂 .
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