Ever thought that you would ask yourself this question? Well, it is a valid one.
Think about it!
Trading is an extremely engaging activity and does help you keep in touch with recent developments in the economy, markets, and stocks. However, its primary objective must be to grow your capital. There are times when one must evaluate when this objective is met and when not.
Here are a few instances where the traders must re-evaluate their approach to the markets, including a pause in trading if required:
- Exhausted capital
A dedicated amount of capital should be earmarked for trading, which is separate from the investing capital. Once the trader finds that he/she has exhausted all the capital that they had set aside for trading purposes. i.e., in various positions, they should consider taking a break rather than pulling out funds from investing capital.
- Lack of time
Trading requires active participation in not only monitoring the trading positions but also in analysing the trades before entering into them. When one finds that he/she cannot dedicate the focus and time needed to analyse the market before taking a position, one must consider delaying it, till they can. This will help the trader avoid unnecessary and unyielding trades.
- Lack of a trading blueprint
When one decides to start trading without a trading blueprint, they are more likely to find themselves stuck in unfavourable positions. The trading blueprint consists of 3 components namely target, stop loss, and duration. These three points must be clear in your mind before you enter a trade. If even one of these points is not clear before the trade, pause till you get the clarity.
- FOMO (Fear of missing out)
Many times, traders find themselves chasing a momentum stock and often end up entering when the move is almost complete. It’s ok to let go of such stocks, which have already made a big move. Each day comes with its own set of opportunities. Approach each day and each stock with a clear view rather than trading with FOMO.
- Illiquid securities
When one observes that the security they want to trade is not liquid one should refrain from trading in it as one would neither be able to book their profit nor use their stop loss effectively and will thus be stuck in that position.
- No clear direction of market swing
If the trader is unsure about which direction the market will swing, it is better to wait and watch rather than force a trade.
- Multiple events
When multiple events that are likely to affect the markets are stacked one after the other, there is no guarantee which news will affect the market more severely than the other. In such a scenario, it is better to observe the pattern formed by the market than to lose money if the prediction goes wrong.
Trading is most productive when done with a system in place. This system not only helps you identify what trades to pick but also helps you avoid the trades that may not be favourable. The latter is a bigger benefit of system-based trading. When you start trading on your whims and fancies or find yourself trading compulsively, you know you need a break.