Traders should learn the importance of doing nothing - DailyFX Tips & Picks

TRADERS often rush into trades thinking that trading is like any other job, where you always need to be busy, independent of whether the task is of high or low value. Applying this mindset to trading is not necessary and can be harmful. In fact, trading low conviction ideas could cost you money.

A useful comparison is between trading and fishing: you need to be in the right place at the right time, must have the correct gear, and patience is vital. Patience in trading is important for two reasons. First, to stay true to your stop loss and profit target. Second, you need it to ensure you wait for price to reach your desired entry level. Staying out of the markets can often be better than participating.

As an example, I use a short-term breakout strategy and it does not take me more than 15 minutes to get a feeling of the market in the morning. If I can’t spot an opportunity the first time I check the markets, I will usually walk away and return about 40 minutes later. When I check the markets the second time, I know they are bound to show some volatility. Yet if the scenarios available still don’t look appealing, I will usually walk away for the day, as breakouts late in the session will most often not be appropriate for my system. By stepping away, I make sure that I only trade when it is prime for my system, and I show patience by not entering if the conditions are not appropriate.

Walking away is an integral part of my trading system, and the same should be true for most other traders.

Alejandro Zambrano is a currency strategy analyst at DailyFX.com. He leads a monthly educational seminar for FXCM live clients at http://bit.ly/PremiumEDU

You can follow him on Twitter @AlexFX00

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