By Giles Coghlan, Chief Currency Analyst at HYCM
Jack Schwager wrote the famous trading book ‘Market Wizards’ in which he tries to answer the question about what it is that, ‘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 emerges from that book is the ability to have patience to wait for the right trading opportunity. The flip side, of course, of 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 the Street, 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 to that question 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 that a problem that you have with your trading? Some have got better at this over the years simply because they have learnt the hard way that they can easily give away the money they made on one no-brainer trade with three or four bad trades taken on impulse.
So, here is a very simple rule for you to follow, ‘If you don’t understand why these markets are moving the way they are, just do nothing’. It is not possible to understand the reason for every currency, commodity or share move. Sometimes moves will happen which you don’t understand. So, ‘if in doubt, stay out’. Look at the tariff changes from last Friday. The deal was on and then off and then on. Confusion was everywhere. The most prudent action was to stay out. Clarity will come, and when it does you will have more confidence to act.