As an active trader or investor, you might be wondering if it’s time to take a break from trading. Navigating the markets has been challenging (to say the least!) for the last two months, and it doesn’t look like things are going to calm down any time soon.
As Kenny Rogers sang in “The Gambler”: “You gotta know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.”
Why this might be a good time to take a break from trading
Each day, we look for a way to make a buck. We buy and sell in markets that have decent depth and breadth and provide liquidity. Those conditions can change – and they have. Price depth has virtually disappeared. As a result we’ve seen some erratic price movements caused by short supply and fickle demand. It has created an illiquid environment, which is painful for both bulls and bears.
The challenge is price discovery; specifically, the lack thereof. We experienced the repercussions in August. Unexpected gaps up and down, out-of-control tweets and negative trade talk pumped up volatility. Stop losses are taken out on the upside and the downside. Unless you’re extremely lucky, you’re getting tossed around like clothes in a dryer.
The entire market has changed its profile for now, so what are we supposed to do?
Recognize that you don’t have an edge (most traders don’t at this time) and take a break from trading. It’s one of the hardest things to do, because when we stop trading it feels as if we have stopped working, or simply failed. That is clearly not the case, and in fact, it’s a smart move.
This is exactly what I do. When it’s obvious I have no edge, I take a break from trading and wait for conditions to improve. I had to learn this the hard way. Trying to trade when the cards were stacked against me got me in a lot of most trouble. When I realized it was unnecessary to fight a fight that I was bound to lose, it became easier to step away.
Bottom line: Accept that conditions aren’t favorable for trading. It doesn’t happen often, and it’s not a permanent condition. Preserve your cash, save your sanity and focus on reading and learning. When the conditions improve, so will your results.