We traders have a tendency to want to trade, no matter what the conditions are. Regardless of the state of the markets, our lives, our health, we want to trade. We often feel compelled to even. Like if we don’t, we’re not a “real trader” or are somehow not doing our job.

But in fact, a big part of the job of trader, is knowing when not to trade. This is often referred to as “sitting on hands” – named that because we literally may have to sit on our own hands to keep them from doing something stupid. It’s absolutely vital for a trader to survive any length of time, to recognize that they don’t actually have to trade every day. Some days, just aren’t worth participating in. The risk is too great, the reward just isn’t there. As TRG Co-Founder Lee Harris likes to say, “Every trade is an opportunity… to lose money” and trading on a day where conditions aren’t favorable, proves that out perfectly.

I know speaking for myself, I feel like I know what my job is each day, and I have to do it. If conditions are crap, and I don’t trade but the setup works out anyway, then I’m likely to beat myself up over it. Think of myself as having failed at my job this day because “It would’ve worked out”. But that’s just resulting, and the truth is I can’t know if I’d have been able to capture the gain, or would’ve been shaken out at a loss. Or maybe I’d have scaled in way too much, to soon, and had to take a really big loss due to the overleveraging.

In trading, simply not losing anything is a win. Every time someone wins, someone else loses. And as long as the someone on the losing end of things isn’t you – then you’re a winner. But if you can’t find a way to safely tilt the probabilities – the odds – in your favor… you’ve got to be able to Sit On Hands. No different than folding a lousy hand in a game of poker.

As the song goes – “You gotta know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.”

Until next time, good trading!

Jonathan van Clute
Community Manager, Trading Research Group