We find doing nothing very hard
Why nothing can pay
Jack Schwager wrote the famous trading book, Market Wizards, in which he tries to answer the question regarding ‘what separates the world’s top traders from the vast majority of unsuccessful investors?’ Jack Schwager interviews some fantastic traders in a bid to answer that question. One of the key principles that emerge from that book is the ability to have the patience to wait for the right trading opportunity. The flip side, of course, to waiting for the ‘right opportunity’ is avoiding the wrong ones. So, there are times when we literally need to be doing nothing. In an interview for TheStreet, Jack Schwager was asked about this principle of doing nothing and, in particular, why investors found it so hard to do. The first part of Jack’s answer was:
Because doing nothing requires the patience of a saint. It is common for traders who develop good methodologies that signal trades infrequently to take other trades that lack the appropriate criteria because of a need “to do something”.
The need to do something; is this a problem you have with your trading? I have got better at this over the years simply because I have learnt the hard way that I can easily give away the money I made on one no-brainer trade with three or four impulsive bad trades. Below are some tips to help you do nothing.
Expose yourself to multiple markets
One habit that can help you do nothing is exposing yourself to multiple markets. If you are primarily a currency trader and wake up to a sleepy Thursday with no data, no driving news and narrow ranges, you can easily start putting on silly trades. However, if you trade multiple markets, you might notice that a particular commodity has some strong fundamental news or an individual share has outperformed some fundamental data point. You can chase other rabbits for the day. The more markets you have access to, the wider pool you have to chase that high-probability trade.
Find another project
This is where being a currency analyst helps me because I really enjoy getting a boost out of guiding people in navigating the markets. There is always plenty for me to do in writing articles, meeting a client, teaching a core concept, or conducting research. However, there are many different things that you could do; having another hobby or project can distract you by immersing you in a different activity.
Reward yourself for doing nothing
When you manage to not take a trade all week because there was nothing to trade, reward yourself. You have saved your powder for when you need it. Reward yourself.
Imagine that something big is just around the next corner
This thought helps me. When nothing is happening I think, ‘there could be some really big market-moving news just around the corner’. The uncertainty of the market is really an asset to me in this respect. One of the market maxims that I teach in an event I run in Dubai 5 times a year is ‘that unexpected events can and do occur in the market’. My go-to illustration of this is the removal of the 2015 EURCHF 1.2000 peg. However, as well as a cautionary tale, the uncertainty of the market can also provide opportunities. Just because the day is scheduled to be quiet, it doesn’t mean an unscheduled surprise event won’t provide a great trade.
In FX markets we only risk our capital when we take action. Taking no action at all means that we risk none of our capital in direct market exposure. Doing nothing may be your most powerful weapon.