How staying out of the market can improve your trading results
The idea that staying OUT of the market is a means of making money in trading sounds completely counter intuitive, but yes, staying out of the market is very often the most profitable option.
In trading it is far, far easier to lose money than make it. Novice traders all too often believe that it is a fast track to wealth, and the way forward is simply to start trading, in earnest. With a hunger for success many hours will be spent glued to the charts in the eager belief that there must be at least one or more trade set-ups staring them in the face waiting to be taken, that time away from the charts equals missed opportunities. After all it makes sense to our conventional mind-set that time at work equals money earned, and the more time put in the higher the pay. The markets however don’t work like that, and it is this very eagerness to keep trading, no matter what, that is always the undoing of novice traders.
Staying out of the market, until the conditions are right, is the key to success. Trading, because you feel you must trade in order to be a trader, will only lead to disappointment and pain.
In order to understand what ‘staying out of the market until the conditions are right’ means, it is necessary to have some form of measurement or yardstick by which you can judge the conditions of the market, and whether the conditions are appropriate for trading. This is a first and fundamental step. It is known as a strategy and encapsulates your understanding of market conditions and whether they are appropriate for trading in the style that you like to trade; i.e., end of day or during the day.
There is a well-known saying in trading that states the order of priority is capital preservation FIRST, then capital growth. This is derived from the ease with which it is to lose capital. Therefore unless the market is doing whatever it needs to do to tick all the boxes of your strategy and trade plan, then staying out of the market is paramount. There is a lot of talk about the need for discipline in trading and this is exactly why: staying out when you know you should is really important. Do not allow yourself to be tempted. Easier said than done, especially if a trade has not been placed for a while, but it is the discipline to stay out when you know you should that makes the difference between long-term capital growth and loss. A novice trader will tend to be frustrated by staying out the market if conditions aren’t right; the professional or seasoned trader will simply recognise the opportunity to preserve capital, but remain vigilant to the opportunities when they do arrive, choosing only the very best set-ups with the highest probabilities of success.
In trading quality is always the preferred option to quantity. For long term success, and peace of mind, it is the only option.
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