Thursday, April 02, 2009

When You Find Yourself With No Positions and No Trades

A perceptive trader writes, "I think you may have written about this, not sure, but all of a sudden I find myself with no positions, and it's a battle for me because I feel uncomfortable without a position (like an addict in withdrawal). But there is nothing at this moment I see. Actually the last few days I have had very few trades."

Our trader raises an important point. Most of us agree that it's important to not overtrade, but not everyone is comfortable with the corollary that this means that, at some times, we won't be trading at all. I recall the time when I was being interviewed for a television broadcast and, in the preparation with the producer, I mentioned that I thought the market was heading lower. The producer emphasized that he did not want me voicing that opinion on air. Could that be that viewers *want* to hear about rising markets (which they equate with opportunity)? Could it be that advertisers, such as brokerage firms and stock picking services, see no upside in a message of "preserve your capital"?

The reality, however, is that every successful trader goes through periods of seeing markets clearly and not seeing them clearly. A characteristic of success that I consistently observe among traders is the ability to recognize when they are seeing things well--and being aggressive at those times, pressing their advantage--and the ability to recognize when they're not seeing things well and pulling in their horns.

If you are trading to make money, it's not difficult to step aside when the waters are murky. If, however, you're trading out of a need for action or a need to dispel boredom, then you will necessarily overtrade.

I would go so far to assert that, even for the most active traders, building periods of non-trading into one's plans for the day is a constructive step. During the non-trading periods, you can:

* Clear your head
* Renew your concentration
* Gain a fresh perspective on markets
* Develop new plans for the rest of the day
* Correct mistakes that occurred earlier in the day

When you're in front of the screen, you are working on trading. When you're away from the screen, you are working on yourself. Even the best pro sports teams take timeouts during the heat of a game. They know that the goal is not to play the game; the goal is to play it well.