With another busy trading week ahead, are you really supposed to pounce on every opportunity to make profits?
Contrary to what some may think, staying on the sidelines does not necessarily mean that you are a lazy trader.
In fact, there are cases where sitting back and refraining from taking any settings is a trading decision in itself.
Here are the top four scenarios where it may be better to wait patiently on the sidelines rather than jump into a trade:
1. You feel out of sync with the markets.
Admit it. There are days when you’re not quite on top of the game and it seems as if the market is hell-bent on proving your analyzes and biases completely wrong.
During these times, it may be tempting to just believe that traders are behaving irrationally and that the market is wrong.
The truth is that you have to admit that there is probably something you are missing and that you need to take a step back to re-evaluate your analysis and trading decisions.
Don’t let your pride get in the way of practicing patience. It may be better for you to sit down for a while and refrain from making trades during those rest days until you are back in sync with market behavior.
2. You are on a losing streak.
Most often, this is the result of the first time you have difficulty understanding market behavior. This can also be the result of poor risk management or a series of poor business decisions.
If you insist that your analysis is correct and the market is wrong, you will likely end up in a recession.
Either way, you need to take some time to evaluate your recent trades to see if you are doing something wrong. Having a detailed trading journal should help you identify what trading mistakes you are making and how you can correct them.
3. There is a lot of uncertainty.
This applies to catalyst seekers who trade news events. Just because your tried and tested economic calendars flag a particular report as a potential market mover doesn’t mean you should absolutely trade it.
In order to trade this event, you must first have enough research and observation about it.
Have you thought about different scenarios? How would you manage your trading if any of these potential scenarios occurred? Has a similar event occurred in the past, and if so, how did the price react?
If you can’t answer these questions yet or if you’re uncomfortable with subjecting your positions to insanely volatile conditions, you may be better off watching on the sidelines and noting the impact on the markets, and on the trading setup you’ve been considering. He took it, and how you could have played it better. This is part of intentional practice, remember?
4. The odds are stacked against you.
Many traders (especially those with an unyielding directional bias) still trade setups with a poor reward-to-risk ratio or low probability.
But remember, the goal of trading is to make profits from those high-probability setups. After all, why risk your hard-earned money on a setup that is unlikely to result in a win? This is counterintuitive and is basically just a gamble.
If there are enough technical or fundamental signals that the odds are not good, it may be better to wait and wait for a better signal.
While taking advantage of market opportunities is a big part of becoming a consistently profitable trader, this does not mean that you have to make trades in order to be in trading.
Sometimes it is better for your account and your trading confidence to sit on the sidelines and choose the best settings.
Don’t worry, the markets will provide you with plenty of opportunities to grow your account!
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