In the fast-paced world of forex trading, many of us are kept on our toes just waiting for the next trading opportunity. However, patience is considered to be one of the key factors necessary for successful results. There are hundreds of articles online that are dedicated to telling you when you should enter a trade, but it’s equally as important to know when you shouldn’t. Take a look at our list below to ensure that you aren’t making the mistake of overtrading and losing money.
#1: During A Losing Streak
While we never want to lose money, losing streaks can affect us all from time to time. The most successful forex traders talk about brushing off losses and moving on, but the truth is that this is easier said than done. If you’ve lost a lot of money and you can’t afford to deposit much more, a losing streak can leave you feeling really down in the dumps. This can also bruise your ego and it can give loss-fearing traders a run for their money. If you continue trading while feeling this way, your results can suffer.
The first thing you need to do is to take a step back from trading and review what’s been going wrong. Hopefully, you’ll have a detailed trading journal handy to help with this step. Look for things like poor risk management, bad trading decisions, or other mistakes that could be adding to your losing streak. After pinpointing those mistakes, you can develop a better plan to avoid them and start again with a renewed sense of confidence.
#2: When You’re Feeling Uncertain
If you trade news events, your economic calendar might be telling you to enter a trade that you just aren’t certain about. The truth is that you don’t have to enter these trades if there isn’t enough evidence to do so. In some cases, it is better to sit out when you’re expecting the market to experience volatile conditions, so ask yourself how the event may play out and consider how much money you could lose if things don’t go your way. If you aren’t comfortable with those answers, try sitting out and taking notes about what would have happened if you had entered the trade. Checking to see if you would have been right or wrong can help influence your future decisions when you can’t decide whether to enter a trade or sit out.
#3: When the Odds Aren’t in Your Favor
You need to think of the risk-to-reward ratio for every trade setup you consider. Is the risk worth it? Some traders choose to enter trades even though the potential risk is high or there’s a low probability that they will make money. In reality, there isn’t much of a reason to risk money on a setup that is unlikely to win any money, so this is a good time to sit out. If you’re not sure whether or not to enter a trade, try looking for fundamental or technical signs that it has a high probability to win. If you can’t find the evidence, it’s probably better to do nothing.