Taking Breaks From The Forex Market
Whenever someone talks about taking a break in Forex trading, or trading in general, it usually comes after losing money. SO… you probably just lost money.
A little, a lot, it doesn’t matter, but you feel like all the trading advice you’ve been given indicates that you should probably take a break. Should you? I wouldn’t advise it.
Now hear me out. There’s probably articles on this website where I can be quoted telling traders who are losing money to take a break and yes, that advice still stands because there are reasons that justify a break from trading that I will discuss later in this article. For now, I do not think taking a break will save some traders. Here’s why…
If you’ve ever read the trading book “the way of the turtle” you will get where I’m coming from. In the book, the author talks about entering a program where a couple of people (some with a bit of trading experience and some without) were learning to trade under the guidance of legendary traders.
These traders made a bet between the two of them whether trading could be TAUGHT to someone or if it was innate in some people and not others. So they gathered a group of traders to settle the bet.
To cut a long story short and to try and avoid some spoilers – The author mentions that the students were taught an already profitable system. The strategy was a bit of a longer term strategy that had a low win rate but had a very high Risk Reward (R:R).
Remember what was said in the article about trading personalities, you should already assume that not everyone would adapt to and be able to execute this strategy and SPOILER ALERT – some people struggled. After a few losses, they would revenge trade or TAKE A BREAK from trading the strategy and the results were staggering.
Traders were MISSING the trades that would have wiped out their losses and brought their accounts back up. In other words, by taking a break, those traders broke the EDGE of the system.
They turned a profitable trading system into a dud because they weren’t taking all the opportunities that showed up.
REMEMBER, this was a longer-term strategy so opportunities were far and few in-between. Missing one profitable trade could be the difference between your year being a profitable, and you losing money that year.
Are breaks breaking your edge?
To answer this question, you need to assess the frequency of your trading. Are your opportunities far and few in-between or are there new opportunities every single day? Unfortunately only one of these traders can afford, literally, to take breaks.
If you know that tomorrow holds many more opportunities to trade and make a profit, then you can probably afford to take a break and that might affect your day or your week’s bottom-line.
If you are a long term trader making a few trades a month, you need to be taking full advantage of every trade because the next one could be the winner that proves your edge true.
Miss it and that could affect your YEAR! And unless you have a lovely reserve of money or different streams of income to get you through that, you are not taking any breaks my friend!
Anyone that has done some thinking about their edge has probably concluded that they need a sufficient sample size to work their edge. So you need all the trades you can get under your belt to actually make a profit.
If your edge gets you a 60% win rate at 1:1 RR (so for every trade you risk a dollar for a dollar minimum). Out of 10 trades, you could lose the first four or the last four and you have no control over that.
BUT for this edge to be profitable, you need to win the other 6 trades out of the 10 trades. If you miss ONE because you were taking a break. That edge becomes a break-even edge.
That’s right that 60% win-rate just went down to 50% and you are NO LONGER PROFITABLE.
If you miss one more because you were taking a break, you are now a losing trader. Not because the strategy doesn’t work, but because you aren’t catching the winners to make you profitable.
TAKE A BREAK!
I hope I didn’t scare with the above and now you’re afraid to take breaks because you’re waiting for that ONE trade. Listen! That one trade won’t save you if you have a negative expectancy (trading without an edge).
That is one NON-NEGOTIABLE reason to take a break from trading. Don’t ever trade without an edge. That’s my definition of gambling, making bets when you don’t have an edge.
Number 2, Life circumstances. If you’re going through a lot in your life, you’re relocating, or you’ve lost loved ones, or you’re chronically frustrated at something off your charts. It might be time just to sit back and warm the bench for a while until you’re collected and your head is in the right place because trading is just a mental game.
Don’t handicap yourself before the war even starts and finally but definitely not least…
Take a break to educate yourself. If you’re losing money and deep down you know you haven’t done the work, you’re shooting yourself in the foot and selling yourself for free.
The big banks will gladly take your money over and over and over again without mercy because you don’t know what you’re doing.
Get your study on, come back and make the banks and your broker nervous every time you put on a trade, make them trade with and not against you because you’re just too hot for them. Other than these reasons I just mentioned, a break is probably doing your trading more harm than good.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.