Stop! Don’t make that trade…

So you’re a trader, huh? (Or investor… if you think of yourself as an investor, just read “invest” instead of “trade”; this message is for you too!) If you are a trader, what do you do? What is your job? It’s too easy to think “I am a trader, therefore I trade”, but this is a serious mistake–if you are a trader your job is not simply “to trade”.

One of the biggest problems many traders face is forcing trades. Your analytical system won’t really help here, because, with a very little nudging, it’s almost always possible to justify any trade you want to make. Perhaps this is not true if you trade a strictly rules-based system (and, in fact, the discipline enforced by such a system is one very good reason to trade a fixed rule set), but if there’s even a little discretion you can probably justify whatever you want to do at any time. A lot of money bleeds out of traders’ accounts in adverse market conditions. Think about it: if you’re a daytrader, how often have you given away money midday? If you’re a swing trader, how often have you entered trades in rangebound markets? How much money would you have in your account if you hadn’t torn it up when you knew you shouldn’t be trading?

Well, good news: we can fix this problem, but it’s going to take some work. The first step is to realize that your job is not to trade–rather, your job is to take the best trades. Your job is to take on the right types of risk at the right time, and, sometimes, maybe for a long time, this means doing nothing.

So, if you’re a trader and the market enters a period where it does not favor your trading style, what are you to do? We have to stop trading in these conditions, and certainly have to stop trading out of boredom, but if you simply stop trading, the psychological stress can be pretty extreme’ some little voice in the back of your head starts whispering nonsensical tidbits like “you gotta be in it to win it”, or “just take a chance on it. You can always get out!” Here are some ideas for fighting that urge:

  • Get away from the market. If you’re a daytrader, go outside. Go out to eat. Take a walk and talk to your doorman, or call your mom. Be a human for a little while–it’s underrated.
  • Do research. This is a valuable use of your time, and I have found that my time can often be put into coding ideas or looking at market stats.
  • Do something that requires writing by hand. Write poetry. Write a grocery list. Doodle. Draw charts. The act of moving pencil on paper does something powerfully good to the brain.
  • Move. Dance. Do yoga. Do something relaxing or go to the gym and push yourself to your limit. You know what’s right for you today, but just move.
  • Develop some other skill. Work on writing. Learn a new piece of software. Start that book you’ve been meaning to write. Use your time, reclaimed from the market, to make yourself better.

You can come up with other ideas like this, but the key thing is to break the pattern. Don’t sit in front of the market and make boredom trades. (This applies to swing traders too, even if you only look at the market once a day. Metaphorically, get away from the market and don’t let it suck up all of your energy and passion.) Break the pattern and do something different, something rewarding, with your time.

One more thing: don’t get too far from the market; don’t lose touch. Difficult market conditions (like we’re in right now in stocks, currencies, and most commodities), lead to good trades when markets shift into different regimes. You need some system, perhaps as simple as price alerts or regular glances at the market, to know when it is time to shift your focus back, time to harvest the new opportunities in the market. If you’re a trader, most of your job is discipline–the task of managing yourself.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 5 Comments

  1. Ashvin Patel

    When are you planning to share your python course?

    1. Adam Grimes

      It is at least 6 months out… have not started production yet. It will be two modules–a “pure” python module and a python for finance module–that will be available for purchase separately or together, with a substantial discount. As I said, I haven’t started production yet, but the course is planned and all the pieces are falling into place… I’m excited about it and I think it will be a fantastic course.

      1. Socrates-Trader

        Adam, you know what?!?

        I will try to make your timing to my timing. 😉

        At this moment I couldn`t commit to a new
        project, but I believe it will be different in the second half of the year.

        Thanks a lot.

  2. lliv

    Very nice piece of wisdom over here.
    Discipline is the path to follow. Respect of the rules of your System, postiton sizing. And, as a day trader, Learning to do not trade or force trades is the way to follow. Analysis of the past trades winners & losers is very good to know yourself better : what are your forces and weaknesses. This work require strong psycological strengh and in the end, it’s all about you. Thanks for this note. prosper !

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