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.

Main Takeaways:

• Many people find being alone with their thoughts so challenging that they would prefer negative actions, such as giving themselves electric shocks.
• A study showed that most people prefer action over inaction, even if the action is harmful.
• Jack Schwager’s “Market Wizards” emphasizes the importance of patience in trading.
• Successful traders often wait for the right opportunities, avoiding impulsive and unqualified trades.
• Doing nothing in trading requires significant patience, which many traders struggle with due to the urge to act.
• Impulsive trades can quickly negate the profits from well-thought-out trades.
• Expose Yourself to Multiple Markets: Diversify your focus to find high-probability trades across different markets, reducing the urge for impulsive trades.
• Find Another Project: Engage in alternative activities or hobbies to distract yourself and reduce impulsive trading.
• Reward Yourself: Celebrate the discipline of not trading when there are no good opportunities, reinforcing the value of patience.
• Anticipate Big Moves: Maintain the mindset that significant market movements could be imminent, which helps in staying patient.
• In FX markets, taking no action means no direct market exposure and no risk to your capital.
• Doing nothing can often be the most powerful tool in a trader’s arsenal, preserving capital for when the right opportunities arise.