Trading is an all or nothing event mentally. It’s one of the few jobs in the world where working too much can make you lose money instantaneously. If you don’t bring your A-game and have complete focus, chances are you’re going to have a poor experience. I would know — I’ve had plenty of them. And so here are the top 10 times that I’ve learned it’s better to just sit it out and live to trade another day:

  1. Don’t trade when you’re sick – Let’s face it — for every Michael Jordan flu game, there are hundreds of sub-standard performances when players are sick. It’s a normal trading day, not Game 5 of the NBA Finals. Just sit it out.
  2. Don’t trade when you’re tired – Same as #1. If you can’t be mentally sharp and focused, you’ll be better off staying even.
  3. Don’t trade you have to (a.k.a money problems) – Ah stress. Who thinks trading when you can’t afford a loss is a good idea? That’s what I thought.
  4. Don’t trade after a fight with your significant other – Sometimes your personal life interferes with your career. It’s alright, it happens to all of us from time to time. Just let your emotional levels cool off for a bit before jumping back in.
  5. Don’t trade for the fun of it – Unless you think losing money is fun, in which case you should go right ahead. Otherwise, stick to your boring old technical process.
  6. Don’t trade when you’re bored – Trading should be boring, but you shouldn’t be bored doing it. If you aren’t aware of the market sentiment and following the price action closely you’re going to screw up. So again, trade with focus or don’t trade at all.
  7. Don’t trade when you’re scared – Fear and confidence don’t typically mesh with each other. If clicking the mouse scares you, maybe you need to wait for a trade that you feel better about. And if you lack confidence in general, you probably need a better process.
  8. Don’t trade when you’re depressed – If one losing trade is going to send you into a downward spiral, it’s probably better to not make any trades at all.
  9. Don’t trade when you are under-capitalized – I know this one can be hard to hear, especially if you’re young. But if you have to risk more than 1% of your account on any given trade to make a decent profit, you shouldn’t be trading. See my post on risk allocation for more thoughts on this.
  10. Don’t trade without a process – The key to longevity and consistent profitability as a trader is having a solid technical process. Without it, you’re going to be the market’s punching bag.

Life is far from fair or perfect. So, naturally, outside forces sometimes dictate the outcome of our trading day. Most of the items on this list are examples of obvious emotional baggage, and that’s no accident. Sometimes the best trading day occurs when you just don’t have one. Easier said than done right? Look, we are all human beings and have many things going on outside the 9:30am – 4:00pm walls. However, the market gods have very little compassion for us fellow mouse clickers. Our job is to recognize what we have going on and try to separate our life drama and our trader drama. The last thing we need is a crossover. That leads to acting on pure emotion which almost always results in a negative outcome.

If you simply know when you shouldn’t be trading and rationally sit those days out, you can reduce losses dramatically. And fewer losses now means more capital and greater potential for gains in the future.

Happy trading.

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