Forex Trading Strategies – Being Flat IS a Trade
The water was azure blue, clear as a mountain spring and warm to the touch, but hedge fund girl looked annoyed as we floated lazily on the Caribbean sea soaking up the rays. “I hate this market,” she scowled,” there are absolutely no good long ideas left. Everything has been priced to perfection.”
“So short, “ I suggested, as seawater lapped my face, my mind completely disengaged from the vagaries of the market.
“No,” she shook her head dismissing the idea curtly. “There are no catalysts for shorts.”
I dove deeper into the sea letting the water envelop me completely. I was a thousand miles away from New York and a million years away from the adrenaline filled rush of trading. Here in Turks and Caicos the topography looked much like it did when Columbus first put his foot on shore. I could almost imagine the pirate ships trawling these shallow waters and see the plantation life that defined this land for so long.
I came up for air spat out stream of sea water and blurted out, “Being flat is a trade.” The hedge fund girl looked at me with curiosity and then smiled in agreement, ”You are right. I should just stand down.”
I WAS right. I don’t know why I said it, but I knew I was right. Maybe the beautiful soft water of the Caribbean or the sun beating on my back finally helped me to relax long enough to see the fundamental truth of trading.
When we trade we often see only two binary states of being – long or short. This is especially true when we day trade making ten, twenty, thirty round turns per day confusing volume with work. But there is a clear third choice that many of us forget to consider. Being flat. Staying out of the market is a choice as well. As I’ve noted many times before, the purpose of trading is not to trade, but to make money. Markets for the most part are utterly random and we often have no edge whatsoever if we put on a position simply for the thrill of being in the flow.
When are stand down we actually make a conscious decision to mitigate risk. To paraphrase Ben Franklin a penny not traded is a penny earned. Next time you are opening a position ask yourself if you have a strong reason to act. If the answer is no, then get out and get flat. Remember, being flat IS a trade and most of the time it is the best trade we can make make.