Day trading is a process where people buy or sell financial assets like stocks, currencies, commodities, and cryptocurrencies with the goal of making a profit within the day. The alternatives to day trading are swing trading and investing, where people hold their trades for a while.
Day trading can be highly profitable, especially when a person uses leverage. It is one of the few businesses that can lead to instant profits and double-digit revenue growth within a few days. However, day trading can also be time-consuming and lead to substantial losses.
As such, one way of handling these challenges is to take breaks in the market. This is where you opt not to day trade on certain days. The extreme situation is where you decide to take a sabbatical to reflect and recharge.
In this article, we will look at why you should take breaks as a day trader.
Work-life balance in day trading
Most full-time day traders spend long days actively in the market. Some of these people start trading during the Asian session and continue through the highly active American session.
Their goal is to identify trade opportunities across all sessions in the market. As a result, these people tend to have real physical and mental fatigue by Friday.
Most trading experts recommend that people should have a good work-life balance. This means that they should dedicate enough time to both trade and deal with their social life.
Having a good work-life balance will help you be more successful in day trading. It will also help you be in a good mental state and have a good relationship with your family members.
Approaches to taking breaks in day trading
There are three main types of people in the financial market: day traders, swing traders, and investors. Day traders are people who open and close trades within a day. Scalpers are day traders who have extremely short-term horizons. In most cases, these people open and close trades within a few minutes.
Swing traders have a longer time horizon than day traders. In most cases, these people tend to open and close trades within a few days. Their goal is to identify a trade opportunity and then hold it for a while.
Investors, on the other hand, are people who buy and hold assets like stocks and currencies for weeks and months. A typical investor will open a few trades every year.
Day trader? Take more breaks!
Therefore, in this case, day traders have a bigger need for taking breaks since they spend too much time in the market. In this case, a scalper can decide to take regular breaks within the session. For example, since they open several trades per hour, they can take breaks after every second hour.
Another approach is where they decide to take breaks every Friday afternoon. Instead of trading throughout the day, they can trade for the morning session and take a break in the afternoon.
Another strategy is to take a day off every month. Also, some traders decide to take more days off every quarter.
In addition to scheduled time off, you can also decide to take off when you have made a big loss or a big profit.
Risks of not taking breaks
There are many risks that people who trade for extremely long days without taking breaks go through. Some of these risks are:
Fatigue and burnout
The first big risk for not taking breaks in the market is known as fatigue. Fatigue happens when you work very hard without taking a rest.
A burnout is a situation where you have a significant mental and physical exhaustion. When you focus too much on trading and ignore breaks. Experts in psychology believe that people who are not fatigued tend to make better decisions.
Performance could take a hit
The other risk for not taking breaks in day trading is that your performance could be affected. In most periods, when you trade without taking breaks, there are high chances that you will not be successful.
At times, especially when you are fatigued, you could end up not making sound decisions.
Overtrading is one of the reasons why most people fail in day trading. In most cases, opening too many trades can lead to substantial losses. It also makes it difficult for you to track your existing trades.
Therefore, at times, there is usually no correlation between success and the number of trades that you open per day. It can even lead to diminishing returns.
Why take breaks in day trading
There are many benefits to taking breaks when day trading. These benefits, to a large extent, are the opposite of the risks mentioned above. Some of the top benefits for taking breaks are:
Good work-life balance
Ideally, you want to become both a good trader and have a good family and friends. Taking breaks will help you achieve both.
In addition to the financial resources you provide to your family, they will have more time with you. At times, it is these moments that count.
Better decision making
The other benefit of taking breaks is that it will help you make better decisions in the market. Trading with a clear mind will always go a long way to achieving your goal of making good decisions.
For example, it will help you avoid revenge trading and FOMO. But it can also help you make decisions faster or assess risks more accurately.
Less mental (and physical) stress
As mentioned above, spending too much time can lead to stress and burnout. You can avoid this by taking regular breaks.
In this period, you can read books, take your family out, watch movies, Devote yourself to yoga/meditation or do workouts to relieve tension.
Gaining more knowledge
The other benefit of taking breaks is that it will help you get more knowledge. For example, you can decide to spend more time reading books and watching helpful content. Doing this can lead to more information that will improve your trading.
How to take breaks in day trading
As mentioned, there are several ways that you can incorporate breaks in the market. Some of these approaches are:
- You can incorporate breaks into your trading plan. For example, your strategy can mention that you should only open 20 trades per day with a break in between. Since you have tried and tested this strategy, you should work to follow it to the letter.
- You can decide to use alarms when trading. An alarm or a timer will help you know when to take a break. You should ensure that you follow the alarm or timer to the core.
- Always avoid distractions that can lead to time wastage. Some of the most popular distractions are social media usage.
Further, you should take breaks to do some activities like meditation and workouts in the market.
Summary: how to balance breaks and trading
Taking breaks in the market should not have a negative impact on your profitability. In fact, when done well, it can lead to more profits and a more fulfilling life.
At times, you can decide to take breaks when the market is friendly. For example, you can schedule your regular breaks when market conditions are right such as during Summer and the Christmas season.