When Not to Trade • Beginner's Guide • Forex4noobs (2024)

Knowing when not to trade Forex is crucial to your success. There are a number of scenarios where it is inadvisable to trade Forex. These can be separated into personal/environmental reasons and market reasons.

Personal reasons not to trade:

  1. Get rid of all distractions. You need to keep your focus on the charts and not lose your concentration to other things going on. For instance, you might be waiting for a trade and get distracted. When you come back to your chart you have missed the trade, or even make an error in creating your trade. Distractions can cost you money. However, life is full of them so just put the cat in the hallway and shut the door. Put your baby in a playpen so you don’t have to worry that she has wandered off again. Whatever your potential distractions are, find a way to manage them before you start to trade.
  2. Emotional times. If something emotional is happening in your life and you can’t maintain your objectivity, don’t trade! This could be any number of things that had a negative impact on your day. It could be that you had some road rage earlier or broke up with your partner etc. When trading, you need to be able to assess what is happening in quite a short amount of time. If you are mentally elsewhere then this will have a negative impact on your trading account. Emotionally taxing events are without doubt a sign of when not to trade.

The personal times that you should avoid trading in can be summed up as times when you are out of sync with your normal mental rhythm. There are absolutely times where your emotions or environment negatively affect your trading. This may impact the likelihood of a successful trade. The good news is that these things tend to be in the realm of your control.

The market reasons for not taking a trade are different in this sense. Market reasons tend to be external issues where you have very little control. These can really kick you in the leg and leave you limping for a while. Ignore them at your peril!

Market Reasons not to trade:

  1. Bank Holidays. These are scheduled and there is nothing you can do about it. If there is a U.S. or UK bank holiday I typically won’t trade. This is because the Banks are the biggest participants in the Forex market. If they are on holiday then the volume of transactions being carried out is greatly reduced. This can lead to either really static markets or on occasion erratic markets. Either way, I steer clear.

    If, however, it’s a Bank holiday in another country such as Japan or Australia then I wouldn’t trade currency pairs that belong to those countries (EUR/AUD, USD/JPY etc.) but I would trade all the other pairs. It isn’t always about when not to trade, but also what not to trade.

  2. News. There are scheduled news releases and economic news throughout any given day. These can be found in advance by using an economic calendar. The most popular one is Forex Factory’s calendar. It can sometimes be difficult to know when not to trade when it comes to news.

    There are 3 types of news: yellow, orange, and red. Each has a different expected impact which is explained in the calendar. High impact, red folders tend to really move the market, sometimes spiking in both direction, before finally settling down. These are high risk times where a lot of people get stopped out of trade.

    The one’s I specifically avoid would be the ISM Manufacturing data, interest rate announcements, and NFP related news announcement. However, it’s not just the announcements themselves that can affect the market. Rumours surrounding what the potential numbers will be can cause the market to move in anticipation. Therefore, it’s generally not a good idea to trade the hour before and after news releases. With NFP, it’s a good idea not to trade that entire day.

    That may seem extreme, but these can be the biggest account killers that lead to traders quitting.

  3. Speeches. These tend to be on the economic calendar as well. If specific people are talking, please, do not trade. These people include the ECB President Mario Draghi, Fed Chairman Jerome Powell, and BOE Governor Mark Carney. It’s important that when the BOJ Governor Haruhiko Kuroda speaks to pay attention. These tend to happen when people are asleep, but if you are trading the Japanese session then be wary!

    These people are notorious for dropping hints about economic policy changes that are likely to happen with the currency they are responsible for. These hints can cause a lot of speculation in the market which results in a lot of price movement. This can affect price substantially as they are responsible for setting interest rates for those countries. As mentioned earlier, interest rate announcements can cause big movements.

  4. Erratic Periods. There will be times where a currency is moving differently from normal. Perhaps price is spiking and you don’t know why. This is a good time to stay out of the market. If you can’t understand why price is behaving in a certain way, it is usually due to some unscheduled news that has been released or leaked. That is bad news because the market will be unsure as to how to react. For instance, this happened recently during the credit crunch and the various Banks reporting that they were having major difficulties.

  5. Weekends. It is not recommended to hold trades over the weekend unless your method is a long-term strategy which incorporates holding trades for a long time – weeks, months.

    A lot can happen over a weekend. All it would take is for one Bank to go bust over the weekend for your position to flip on its head. Current tensions in a lot of countries around the world lead to violence which heavily impact the market.

    These type of events will generally lead to the market opening after the weekend with a large gap and generally a large change in your position. This can often cause serious harm to your trading account balance.

  6. Market close/open. It’s a good idea to avoid these or be wary around these times. At market close a number of trading positions are being closed. This will lead to volatility in the currency markets which can then cause price to move erratically. The same applies at market open. A lot of people are opening positions as they didn’t want to hold them over the weekend for the reasons stated above.

  7. December and Summer Holidays. Banks tend to trade the Forex market at least once a day for balance sheet reasons. They can also trade multiple times throughout the day for speculation reasons.

    When I say balance sheet reasons, I mean to balance out their currency book. They need a certain amount of each currency to meet the demand of their customers – both personal and business – that will need to buy foreign currency from the bank or exchange their foreign currency into their local currency. Banks have to balance this out each day otherwise they leave themselves open to Foreign Exchange risk. This means Banks are the major players in the Forex market.

    So during December and the summer months a lot of bank staff take their holidays. Therefore, the Forex market tends to be slower in these months because there are fewer participants. This is typically a good time for private traders, such as us, to take our holiday! If the markets are flat there is no point in trading. You may as well go off and enjoy yourself.

    You’ve got to keep your body in prime trading condition and holidays are a big part of giving your mind some time to relax. Recharge those batteries so that you are ready to go when you get back trading. If you know when not to trade, you will be better prepared for when you should trade!

When Not to Trade • Beginner's Guide • Forex4noobs (2024)

FAQs

When should you not trade forex? ›

There will be times where a currency is moving differently from normal. Perhaps price is spiking and you don't know why. This is a good time to stay out of the market. If you can't understand why price is behaving in a certain way, it is usually due to some unscheduled news that has been released or leaked.

When to trade and when not to trade for beginners? ›

If trading the beginner strategy, always close your positions on Friday. It is essential in the beginning to avoid leaving trades open over the weekend. Even though the markets are closed, speeches, catastrophes and political events — for example — can happen that will move the price.

What is the 3 5 7 rule in trading? ›

The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.

Why you shouldn t trade forex on friday? ›

Trading on Fridays provides an opportunity for high reward but that also comes with a high risk. There are some reasons why you shouldn't trade on Friday: 1) Large gaps when the market opens 2) Higher spreads 3) Bad market conditions.

What is the number one rule in forex trading? ›

Rule 1: Education Is Key

Before diving into the world of forex trading, invest time in education. Learn about the forex market, how it operates, the various trading strategies, and technical and fundamental analysis. Continuous learning will help you make informed decisions and develop effective trading strategies.

What is the 5-3-1 rule in trading? ›

The numbers five, three, and one stand for: Five currency pairs to learn and trade. Three strategies to become an expert on and use with your trades. One time to trade, the same time every day.

What is the 3 trade rule? ›

Essentially, if you have a $5,000 account, you can only make three-day trades in any rolling five-day period. Once your account value is above $25,000, the restriction no longer applies to you. You usually don't have to worry about violating this rule by mistake because your broker will notify you.

What is the traders 3 day rule? ›

Here, the 3-Day Rule advises patience, suggesting that both parties wait for three trading days to allow the market to fully absorb the news or events causing the drop.

What is 90% rule in trading? ›

The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.

What is the 80% rule in trading? ›

The Rule. If, after trading outside the Value Area, we then trade back into the Value Area (VA) and the market closes inside the VA in one of the 30 minute brackets then there is an 80% chance that the market will trade back to the other side of the VA.

What is the 80 20 rule in trading? ›

While stock market investors rely on several rules to formulate their investment strategies, the 80-20 rule remains the most famous. Before we proceed, if you're wondering, 'what is the 80-20 rule? ' - it simply means that 80% of your portfolio's gains come from 20% of your investments.

Is Friday the worst day to trade forex? ›

The final reason is that the risk of rapid moves in one direction reduces due to the many active traders from Tuesday to Thursday. However, on Monday and Friday, forex prices can move very quickly in one direction, making it more challenging to manage your risk.

What are the bad days to trade? ›

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.

Why you shouldn't trade at night? ›

Overnight positions are those that have not been closed out by the end of a trading day. Overnight positions can expose an investor to the risk that new events may occur while the markets are closed. Day traders typically try to avoid holding overnight positions.

What is the best time to trade for beginners? ›

The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.

What is the best timeframe for trading as a beginner? ›

Medium-term time frames, such as the 4-hour and daily charts, are often favored by beginners. These time frames strike a balance between providing enough trading opportunities and allowing for a broader perspective on market trends.

What should I trade as a beginner? ›

As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding prospects is easier with just a few stocks. It's now common to trade fractional shares. That lets you specify smaller dollar amounts that you wish to invest.

Should I start trading or not? ›

Trading is often viewed as a high barrier-to-entry profession, but as long as you have both ambition and patience, you can trade for a living (even with little to no money). Trading can become a full-time career opportunity, a part-time opportunity, or just a way to generate supplemental income.

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Ouida Strosin DO

Last Updated:

Views: 5337

Rating: 4.6 / 5 (56 voted)

Reviews: 87% of readers found this page helpful

Author information

Name: Ouida Strosin DO

Birthday: 1995-04-27

Address: Suite 927 930 Kilback Radial, Candidaville, TN 87795

Phone: +8561498978366

Job: Legacy Manufacturing Specialist

Hobby: Singing, Mountain biking, Water sports, Water sports, Taxidermy, Polo, Pet

Introduction: My name is Ouida Strosin DO, I am a precious, combative, spotless, modern, spotless, beautiful, precious person who loves writing and wants to share my knowledge and understanding with you.