When Not To Trade

There are some times when you don't want to be in the market. At all. Even if all the signs say "GET IN!". And normally these times are around announcements. "Major" announcements.

When major announcements happen, the price quite often spikes. In fact, it quite often spikes in one direction, then the other, then reverts back to where it was before all that happened and continues on as if nothing ever happened.

Only something did happen - one of the spikes took out your stop. Very frustrating, especially in the times when the price does revert back its previous price and course.

Some people trade the announcements by putting entry orders on either side of the current price action just before the announcement, and probably cancelling the order that doesn't get taken up. And probably they do well out of it. But for me, no broker guarantees your order or your stop loss around announcement time. Slippage is a big risk factor.

Anyway, I don't get into it, so I need rules to tell me what to do when this is about to occur and what to do about it.

First, define "major". Not all announcements move the markets. There are some economic calendars you can use for this. There's the Forex Factory one, which specifies whether an announcement is of the "Volatility Expected", "Volatility Possible" or "Volatility Unlikely" variety. Choose which ones you want to avoid and do it. There are other calendars about also.

Other times to avoid trading might be around public or national holidays, weekends, Christmas, Easter, Thanksgiving in the US. Because we always want to be able to get in and out of a trade when we want to get in and out, liquidity is important. And liquidity might be affected around these days. Might be. Up to you.

Once you've defined the times you don't want to be trading, now you have to answer a couple of other questions.

If you don't have any trades open, it's simple - just don't open any new trades in these times. But you should specify, exactly, when these "holidays" start and end. Is it 2 hours before an announcement where volatility is expected, or is it 1 hour? Or 5 minutes?

Does your trading systems Christmas holiday start when the clock ticks over to Christmas day, or does it start at 1pm on December 23rd? Does it end when the clock ticks over to December 26? Or does it end at 10am on January 4th when the New Years festivities have also died down? This stuffs not hard, just write it out and follow it.

Further, if you have an open trade, what do you do with it? Close it? Move the stop loss to lock in as much profit as possible? Leave it alone if you've already locked in a certain amount of profit? Write it down. Follow it. Easy.