Being Successful in Trading by Not Trading –
“My philosophy has always been to stay out of the market as much as possible. The less time I am in the market, the less risk I am taking. If dictated by market conditions, I’d rather make X percent having significant market exposure in only three months of the year than make the same amount while being in the market all the time.” – Mark Minervini in Stock Market Wizards by Jack Schwager
I was rereading the book Stock Market Wizards recently and the above quote struck a chord with me. It goes against the general wisdom that the more you are in the market, the lower the time frame you trade, and the more trades you take, the higher your potential profits will be.
And yet, that quote has a lot of truth in it. That’s because in trading, opportunities are not distributed evenly over time: Sometimes the market offers more opportunity, while at other times it might take weeks or months before it offers tradable setups. This is true not only for stocks – the kind of market Minervini was talking about – but indeed in any other market.
As a consequence, the successful trader will vary his or her involvement in the markets: Sometimes trading actively and in size, and other times refraining from trading altogether. I believe that the ability to reduce or even stop trading activity for certain periods of time is an edge in itself because it helps traders hang on to their gains in times when the market is unsuited to their trading system.
As everyone is different, what this translates to in practice is that some traders, for instance, decrease trading when the market becomes very choppy while others when it starts trending strongly.