6 Occasions to Stay Away From the Market

One of the most common misconceptions about day trading is that one has to be actively engaged in the market. In my experience, I have noted that the most successful traders are those who make the least trades per day. They become successful by having the knowledge on when to enter the market and when to stay in the sidelines. In this article, I will highlight 5 times that you should take the latter strategy and stay in the sideline.

Psychological aspect

As a trader, you will go through various psychologically phases. When you have made a big gain, you will be very excited. On the other hand, when you have lost a huge chunk of your portfolio, your psychological status will be really bad. When you are very excited and when you are in a mess, I recommend that you stay away from the market until when you are calm and collected. When you close a highly profitable trade, chances are that you might be tempted to open another trade without doing due diligence. In addition, when you make substantial losses, chances are that you will be tempted to open another trade to recoup the losses. The ideal situation is to stay calm, do your analysis and then enter the market when you find appropriate.

Increased uncertainty

The beauty of day trading is that people make money regardless of the direction of the charts. When the chart is going up, the bulls profit and when the chart is going south, the bears have their day. Most people (including me) love volatility. However, there are times when the amount of uncertainty in the market is usually very high. A good example happened this previous weekend. The Greece crisis which has been dominating the global news, led to accelerated uncertainty in the financial markets. When the Asian markets opened on Monday, all the instruments of the market took a downward trend. Those who had sold the instruments made a lot of money while their counterparts took a beating. However, the fact was that no one was certain what would happen during the weekend when the markets were closed. To avoid being caught up in increased volatility, I recommend that you stay in the sidelines during such times.

Release of the data

As I have explained in my previous articles, the worst place to find yourself as a trader is when the data is being released. The fact is that no one really knows the exact data that will be released. No one knows if it will beat the forecasts or not. When the data goes against your trade, the fact is that you will have significant losses. To avoid this volatility, I recommend that you avoid the market during such times.

When the analysis is not adding up

As I have explained before, fundamental and technical analysis are usually very important for a day trader. All traders in the world use these tools to enter and leave the market. However, there are times when the analysis on a personal level fails. For instance, there are times when a major data will be released in favour of the dollar but the pairs fail to move in the expected direction. For instance, when the US employment data beats the market, the expectation is that the EURUSD pair will go down as the dollar strengthens. In some trading sessions, the opposite will happen. During those days, I recommend that you stay away from the market. During the time you are away from the market, I recommend that you spend some time analysing all the data that you have. This will help you find the reasons why the market is behaving like that.

Friday Afternoons

As a trader, I always avoid trading during Friday afternoon sessions. This is because most of the trading movements in the market is caused by the big banks and hedge funds. These institutions take precautionary measures to avoid being caught up in the weekends with open trades. As a result, they close most of their positions during these times. Also, most of the most important data is released on Fridays making the afternoon sessions very volatile. Therefore, I have observed that taking the sidelines during these sessions can really help you avoid the volatility and the weekend trap.

Your instincts

As human beings, our instincts are usually very important especially when it comes to making major decisions. In most cases, our instincts are usually right. For instance, there are days when I wake up and feel less motivated to trade. During such days, I have tried my best to stay away from the market. When I have gone against my instincts, the results have been catastrophic. It is during such days that I have made the biggest losses. As a trader, the more time you spend in the market, the more risk you expose yourself to. Therefore, I recommend that you put a strategy whereby you know when to enter the market, when to exit and when to stay comfortably in the sidelines. By doing this, your exposure to risk will be limited. You will also boost your psychological wellbeing by having this plan in place.