“Sometimes, no trade is the best trade”
Written by Atish Patel
I have been FX trading for 4 years striving for perfection in my strategy and mindset. I want to explain how discipline and resistance to overtrading can play a colossal part in being consistently profitable in the market. It goes without saying that this largely depends on one’s strategy, but I currently spend quite some time with aspiring traders, all at different standards who are seeking consistency in the markets and frequently I see the same downfall in their approach - their burning desire to enter trades just to scratch the itch!
In my opinion, if you’re unsure if you are overtrading you probably are. You just don’t realise you’re doing it. Here are a few examples of what I mean…
Being a midterm trader, be cautious of analysing the lower timeframes when the markets are quiet. Classic mistake! Of course, during these times, the lower timeframes seem tempting but in reality, they are merely plagued with lower-probability trade setups that you surely wouldn’t look twice at during normal levels of liquidity.
Another question to regularly ask yourself is, am I entering additional trades just because my current trade is in profit and I’ve moved to breakeven? Was the additional trade set-up VALID or did I jump the gun because I am feeling excited about the first profitable position?
There are many other situations in addition to the two mentioned above that contribute to overtrading. I think the main problem is that many traders are simply unaware that they are over-trading when they are in the moment. The most efficient way to acknowledge if you are overtrading is to simply have a checklist for your entries. This is a specific criterion required to present itself before you are permitted to pull the trigger and unless the market presents this you are forbidden to enter. There’s not always a perfect set-up and there’s no need to force the issue. Your trading plan needs to be fairly strict and will force you to be consistent in your approach without breaking your rules and entering on half-opportunities.
Furthermore, creating a trading journal that details all positions you take and on what criteria will allow you to have something to reflect on at the end of the trading day with a view to improve upon your trading plan and ensure no trades were taken impulsively and against your rules. This may sound like a tedious task, but I can assure you, you will not regret this. Trade-monitoring websites such as www.myfxbook.com are incredibly useful for the same reason and will pull all the data from your MT4 account without you having to input any information on your trades.
Remember, when trading the markets there are 3 positions you can be in. Buy, sell or just do nothing. Sometimes it’s just not a trading day and we have to learn to accept that. Doing nothing requires a fair amount of patience. It’s the position that most of us will be in most of the time, so it’s important to be good at it! It’s hard to fight the urge, but a good trader should know how to resist the temptation and minimise his exposure to losing trades and bad set-ups. If you force a trade on those days, you are more likely to lose. What makes the situation worse is that the initial mistake you have made is now likely to have a negative effect on your performance for the rest of the trading day. The downward spiral has begun.
Let’s take an everyday example that I recently came across… You have plans for the weekend and so you hit the shops with an aim to buy a specific shirt. If you don’t find anything you like you don’t buy any old shirt just to say you bought a new shirt. You will live to shop another day. The same is true with our trading dilemmas. You will live to trade another day.
In summary, that feeling you get that you’re missing out on something is real, but what you’re likely missing out on is a loss. I don’t buy into emotions such as fear of missing out (FOMO) because this is the FX market after all. The next opportunity is just around the corner.
What are your thoughts?