Everyone wants to know at what price it makes sense to buy or sell one or another financial instrument whether it is a currency pair in the Forex market, a futures contract on a commodity exchange or stocks in the stock market. The truth is that the trading is both understanding the moments when you shouldn’t trade and knowing the points of entry into the market. Perhaps it sounds similar, but we will try to explain to you why it is not so.
For example, the EUR/USD currency pair could form and ideal bearish pin bar at the resistance level, but if it happens just before a decision of the European Central Bank about the interest rates, it would not be a proper time for trading. The trading signal was identified correctly, but the time of trading wasn’t good.
Before we start speaking about the time factors, which you need to take into account in trading in the financial markets, let’s focus our attention on the fact that they are all not complex. In this article we will tell you about three periods of time, during which to stay out of the market would be a wise decision.
In this article:
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- Immediately before or after the broadcast of important news.
- The first and last working day of the week.
- When you are tired or are not in the trading mood.
- Summary.
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Immediately before or after the broadcast of important news
Volatility for a trader is what brings him money. You will not be able to make money in the market which doesn’t move anywhere. We all had positions after opening which the market moved in the direction, profitable for us, bringing us a heap of money.
Such weeks give great satisfaction from trading, nevertheless, they could be very dangerous, especially for beginners. You observed it yourself how the growth of volatility in the market created your profit ‘from the pure air’. At first sight, everything looks quite innocent. Moreover, what’s wrong with the fact that higher volatility brings higher profit? However, if someone makes money on volatility there should be someone who loses money on volatility.
Now you know that news, especially such significant ones as decisions regarding interest rates and NFP (Non-Farm Payroll – a macroeconomic indicator in the US), which is also jokingly called Not For Professionals, become decisive events for the growth of market volatility.
If you ever tried to trade such news, you know how dangerous such a trading could be. Indeed, such volatility could bring profit, however, trading during broadcast of the news, which have a chance outcome and could result in an unpredictable market reaction, cannot be a method of achieving a stable result in trading.
As a rule, a trader’s trading system is based on signals, which are generated by senior timeframes, namely by daily or 4-hour charts. However, there is no system in trading on news, which assumes execution of a trade immediately before or after their emergence in the information field. Even if the market starts moving in the direction, which is profitable for your, most probably, your trade will be closed by a stop loss before you manage to take profit.
If you trade on a 4-hour timeframe, wait for closing the next 4-hour candle before you start thinking about execution of a trade. Such a simple action, or rather inaction, as just waiting for closing the next daily or 4-hour candle may secure you from a bigger number of dangerous situations than you can just imagine.
Note that it is simple but not easy. There is nothing difficult in waiting for closing a candle or bar in the Footprint chart. Anyone can do it. The difficult part is that it is necessary to possess patience and discipline for being able to wait until it happens.
Remember that it doesn’t mean that you have to trade in the market only because it moves. Good quality trading setups do not emerge often but you should be ready to go when they emerge in your trading instrument. However, you will never be ready if you are chasing volatility all day long.
The first and last day of the week
The first 24 hours of each new week are relatively inactive from the point of view of trading. The market participants have just returned to the trading platforms after the week-end. Moreover, the institutional players identify the further direction of the market movement during the first working day. In view of this, it is better to stay out of the market on Monday, of course, if you do not have open positions from the previous week, which you have to manage.
There is Friday on the other side. The last 24 hours of a trading week are often characterized by low liquidity. Besides, it is not a pleasant decision to take additional risk before the week-end. For example, even such a liquid market as Forex could open with a rather aggressive gap after the week-end. Not many traders would wish to become victims of such a situation on Monday all of a sudden finding themselves in loss-making positions.
Friday could be considered the worst one for trading out of these two days. The very idea of opening a new trade before the week-end, during which a trader cannot do anything apart from watching the news, should put him on his guard. Now you know that Monday and Friday are bad days for trading and the latter is worse than the former. If you exclude Monday and Friday from your trading you will discover that the best trading setups emerge between Tuesday and Thursday. By that time, the institutional market participants has already made a decision with respect to the market movement for the current week.
Any good quality trading setup, which emerged in the market between Tuesday and Thursday, could be considered a fair play. Of course, sometimes you can also trade on Mondays, but in this case a trading setup should be of the highest quality. It should be so good that you must be crazy not to use it. As regards trades on Friday, it is a no-go zone. You’d better wait for Monday to assess the market situation one more time. Thus, you wouldn’t have to worry about the market opening with a gap against your position in the beginning of a new week.
When you are tired or are not in the trading mood
Efficient trading requires mental discipline. Traders who are able to control their emotional state achieve success. Those traders who are not able to control their emotions become disappointed in trading. Although, it is not so much important how disciplined you are and how able you are to control your emotions, since there will always be days in the market when it is very difficult to get a hold of yourself. Explanation to it is on the surface.
Perhaps, you do not feel well or didn’t sleep well last night. Maybe, you have to do something else apart from trading and this would require your attention and distract your mind. A series of failures could be another dangerous scenario. If you closed 3 or 4 loss-making trades in a row, the chances are high that you are in the state of increased anxiety. Whatever the reason is, do not trade if you are not in the trading mood.
There are no rules which would make you trade. Even if a first-grade trading setup has been formed in the market, the time spent away from the monitor and charts could be quite justified. A break in trading usually renders great assistance if you are not in the trading mood. The best decision after you made a loss would be to have some rest. As soon as you come back to trading, reduce the size of the position, which you usually trade, twice and do not increase it until you feel confident again.
Summary
Understanding of when to trade and when not to trade is decisive for a trader. It would help you to preserve your trading capital at those moments when the market is very volatile or non-liquid and increase your capital when a proper time for trading has come. Execution of trades immediately before or after important news is considered to be the worst time for trading. Decisions of central banks about interest rates and NFP are examples of such news.
Another time you should avoid in trading is the first and last working days of the week. Besides, Friday is considered to be the worst of them. To take a risk on the eve of the week-end could be risky. As regards Monday, the market could be uncertain on that day, since the traders have just come back to their trading platforms after a 48 hour break.
Trading is an intellectual game. Perhaps, you would agree that 80% of success in trading falls on the pattern of thinking and the rest 20% on technical aspects of trading. If you have another opinion in this respect, please, share it in the comments to this article. We are interested in learning your point of view. That is why, if you are not in the best mental shape, just spend this time away from the market. It is better to miss one or two trading setups than to work yourself into an emotional breakdown.
Days from Tuesday until Thursday are the best for trading. Remember that you shouldn’t execute trades immediately before or after a broadcast of important economic news. The last but not the least: make sure you are in the trading mood before you put your trading capital at risk.
