As we start 2022, with so much unclear, it can be worth remembering the fact that less trading often results in more profitable trading. Why is this? Well, for the simple reason that not all trades have the same probability of working out. Some trades are far more likely to succeed than others. These are called high probability setups.
Only take the high probability setups.
So, for example, let’s say one central bank is embarking on a series of rate cuts you know that means the currency will see medium-term weakness. In contrast, another central bank is going to be embarking on a series of rate hikes. This means the currency will see medium-term strength. So, you now have identified a high probability currency pair. You know that the strong currency should gain against the weak currency. By focusing on these higher probability trades it means that you are going to trade less, but the trades you do take should be of a higher quality. Here are three reasons to only take high probability trades.
Pay less on fees
The other advantage of trading less is that you will pay less in terms of your fees. If you are entering and exiting the market many times your bottom line can be impacted by your fees in the spread. The less trades you execute the less you pay in fees.
There is a strange psychological impact that takes place as soon as you have entered a market with a sell or a buy order. The fact that you are active in that market means that you are invested in a far deeper way mentally than before you entered the market. In short that investment will, to some extent, cloud your judgement. At the very least it will make thinking rationally harder. The best time to think rationally about the market is when you don’t have a position in the market. By trading less you will have more time to think rationally, so when you do enter the market it is from a strong mental position.
Avoid over trading & revenge trading
The other psychological benefit of trading less is that you are more likely to avoid the twin traps of over trading and revenge trading. Traders can quickly find themselves in a position of entering the market multiple times and then exiting just as quickly in a way that slowly bleeds their bottom line.