Forex trading is an easy and remote opportunity to harness your talent and trading acumen to get easy profits. Whether it is your full-time or part-time activity, taking care of several factors is vital to earn profits. A well-versed trader knows when to make an entry using his technical and fundamental analysis skills, but knowing when not to make entries is more important. A trader should make strict rules about not placing trades during the following events/ conditions.
Instances When One Should Avoid Trading Forex?
Here are nine instances/ days when forex traders should avoid trading.
1. Avoid Trading On Days of High Impact News
Two types of news events have a significant impact on the market. First is high-impact news, as its name suggests it has the highest impact on the market. This news is represented by red dots or red stars on your broker. Annual GDP reports, FOMC interest rate reports, or CPI reports are some of the best examples of high-impact news. Second is low-impact news; this news has a low impact on the market, and they are represented by yellow dots or stars on the broker. A trader should avoid trading during the days of high-impact news because it involves high risk, and the impact of news can go in either direction. If the market goes against speculated estimates, it will take away all the profits earned in the week or even more.
2. When the Market is Too Volatile
This generally happens when there is a high-impact news scheduled on that day. However, traders have to face many instances where they need help to predict market direction. The market may move rapidly because of unknown or undeclared reasons. Remember, a forex trader is part of a more than six trillion-dollar industry, and some players can force the market’s direction in any direction, so be cautious about market movement. Try not to make entries for high gains in such a volatile market because you may not be aware of the reasons.
3. When Fundamental and Technical Analysis are Not Converging
A good trader follows the results of his technical and fundamental analysis. A good time to make trades is when your analyses corroborate or complement each other. There will be instances where your technical and fundamental analyses tell a different story about the market. You might need to catch up on a technical or fundamental analysis aspect. Never make entries when your analyses show a different picture of the market. Instead, recheck all the elements, repeat the analysis, and then go for trading.
4. When Market Shows Low Volatility
This may look contradictory to point 2 mentioned above; instead, it is a market condition where the market shows tiny movement. The risk factor also becomes very low; eventually, profits become too little for your efforts. A trader with experience realises average volatility, high volatility, and low volatility periods or measures using VIX (less than 12 is low volatile, between 12 and 20 usually is volatile, and greater than 20 is considered high volatile). So avoid trading during periods of low volatility using high lots, relax, and save energy for periods of expected volatility.
5. Avoid Trading During Bank Holidays
Banks are significant stakeholders in the forex market. Since the forex market is an OTC (over-the-counter) marketplace where banks play an essential role. Bank holidays are different for all countries; one has to keep an eye on bank holidays in the US and UK because of their high impact on the market. Bank holidays cause the market to move slowly (low volatility), trade volume to drop, and significantly disturb the predictability of the market. So avoid trading on bank holidays, especially in the US and UK. To prepare yourself, follow forex calendars on your broker apps or the US and UK holiday calendars.
6. Try Not to Trade When You Are Already in A Trade
This term is called multi-trading or, more notoriously, overtrading. Overtrading is one of the most common mistakes new traders make and lose money. Overtrading is a sign of FOMO and fear. It can be suicidal for day traders because they have a very short time to make decisions. Swing traders are no different in this case. In forex trading, it is said that “the less you trade, the more you earn.” So once you make a trade, try giving the trade and yourself time to complete it before making another. Only do this if you are 100% sure about a new trade.
7. When You Are Not Well Prepared
Forex trading or stock trading had a bad reputation for making losses to people. Even though the forex market is high-risk, it’s still not the market responsible for their losses. Instead, it’s the behaviour of traders that is responsible. The Forex market urges traders to keep trading for 24 hours, and most traders, even aced traders, fall into this trap. The urge compels them to make trades irrespective of whether they are ready for it or not. So, before making trades, give yourself some time and think about whether you are prepared. Have you done your homework for the trade? If the answer is no, then never go for it.
8. When You Are Tired or Late at Night
Forex trading is an extensive mental activity that requires focus. If you are not a full-time trader, you may face this condition. A bad day at work, home, or health issues significantly impacts your mental performance. If you feel all right, it is the right time for trading, but avoiding trading on a day when you are not feeling good is better. Additionally, most part-time traders work late at night when brain activity is slow, so try to avoid trading late at night. Don’t let your urge compel you to make irrational trades. A good trader controls his urge.
9. Friday and Monday
Forex trading is a time-sensitive market. The success of a trade depends on when the entry has been made. Experts believe that weekend trading should be avoided because of low trading volume. Moreover, Monday and Friday are not favourable days for the forex market. Mondays tend to be highly volatile because of the accumulation of news worldwide and the start of working days. In contrast, the market showed low volatility and trading volume; hence, efforts made on Friday are generally less productive.
Bottom Line
Forex is a marketplace where knowing when to make trades is essential, but knowing when not to trade is more important. Most new entrants in this market end up losing money because they are not aware of market behaviour and make trades where it is highly not recommended. Generally speaking, making entries when the market is too volatile or sluggish is not advisable. Moreover, there are other instances where traders should avoid trading forex.
