Learn When to NOT Trade

Learn When to NOT Trade


Trading is a very complex and powerful skill that must be respected if it is to be developed correctly.  Few people consider this, but for a trader in an enterprise or personal situation, the path to success begins with a simple question “WHEN to NOT Trade?”

The Pinnacle Methods spends a considerable amount of time discovering and getting comfortable with the highest probability locations with the lowest risks to place our orders in; which are very important indeed, but did you ever think to consider that deciding when NOT to trade is just as, if not more, important than deciding when to trade?

In this article, we will summarize the conditions and factors that should help you confirm when you should NOT trade. We will separate into the two major categories below:

1 – Personal Conditions, Readiness, and Psychology

Often in formal trading sessions and in discussions with individuals in sessions or offline, much of the discussion is about getting into a trade. A lot of talk about the possibilities, and little talk about your personal concerns. Everyone isn’t the same. They don’t really know you or your personal trade plans, and that is a good thing.

Have you ever been forced into a trading discussion and at some point in the discussion feel that there was something wrong?  That you weren’t ready? That to end the discussion there had to be a trade defined and executed?  Did you feel a bit steam-rolled into moving forward to “fit in”? Did you feel that after so many minutes of discussion that the only resolution should be to satisfy the urge to trade, by trading?

Does the focus on getting a trade have some value in itself?  The natural “ego” of the trader basically saying: “Sure, you can get a trade, just look for it!”.  Does getting a trade have some urgency to you, or who you are working with, so that no matter what (and sometimes disregarding some real concerns) defining and executing a trade is a “must”?

When there is confusion or pressure (internal or external) on you making trade decisions, it is time to step back and allow these pressures to subside.  Get into a state of execution, not decision. How to do this?  As most aspects of trading, you need to listen to your anxiety and address it straight-forward.

WHEN to NOT Trade? 1 – Personal Conditions, Readiness, and Psychology (summary – not exhaustive list, so come up with your own):

  1. When you are anxious (or too excited). That’s when you aren’t at your best.
  2. When you didn’t find (or see) the trade yourself. (Not open to blame other sources).
  3. When the trade doesn’t fit into your existing trade plan.
  4. You are not technically ready. Your tools, your knowledge, etc.
  5. When you have no plan to Enter, Stop, Target.
  6. When you have an untested plan for the situation, security, or technique.
  7. When your plan’s “pressure valve” has fired. (Rules that say: “hold on – regroup”)
  8. When your energy is low, and you are unprepared.


(Of course, none of this is simple or easy, but nothing ever so important really is, right?)

2 – Market Conditions.

(WRITER’S NOTE: Of course, we must include rules regarding Fair Value, Range, Fresh Demand/Supply per the Pinnacle Methodology, as well as location of inverses, etc., as very important to deciding where not to trade; however, for this section we will discuss the other aspects of the markets that come into play every day that affect our comfort and probability of success.)

A trader must observe what market risks for a particular security are acceptable. This is done by observing the typical behavior of that specific market. Observing its related and inverse markets (if they exist) and how they align with them. These secondary markets can indicate when (and where) not to trade within the primary market. When these indicators are not properly aligned, the decision is to NOT trade.

Another great concern is what market conditions (macro or micro) may be indicators that the probabilities of your personal success are hindered, inconsistent, or not what your personal strategy should allow.  This is difficult to define analytically and requires some experience.  We use stops to allow that learning to occur.

Key news events (FOMC), elections, rate increases, interest rates, business environments, known news events, etc, may force the adjustment of our trade plans (including sidelining). Many newer traders have a better chance of success by avoiding these types of events and waiting for the next-best-opportunity in a more favorable price action for their trade plan.

The market has different timeframes on which to trade.  While timeframes are never the sole reason to decide to enter a trade, it is highly likely that the very low timeframe zones could be where a trader decides where NOT to trade.  Experience and practice will bring this out.

Every market has indexes or other inverse markets that define areas of decreased probability. These relations can define very well where and when the higher probability entries and overall trades can be taken.

All traders (and especially new traders) need to create a “patiently waiting” strategy.  They need to listen to the news in a way that doesn’t make them speculate on price movement. This is one of the most difficult parts of trading.   This will naturally eliminate many poor locations where trading has less probability of success.

Do not trade when the profit zone does not give you appropriate profit.  Sounds simple right?  That really is intended to mean that don’t just focus on the entry.

High volatility must make the trader alter their plan for these realities.   Possibly decreasing position size (or increasing position size) based, of course, on a well-thought-out plan.  But high volatility for many traders should force a “sideline and test” strategy.


2 – When NOT to trade? Market Conditions (summary – also, you may have your own additions):

  1. Pinnacle methodology, sessions, materials “says” not to.
  2. When your knowledge and comfort with the market and its related markets are poor.
  3. General market conditions (of any type) put you into an unsure
  4. Around or near key known news events (depending on your skills of course).
  5. When the timeframe you are zoning on is not appropriate for your trading history.
  6. Where a related index or inverse market is not appropriately aligned (don’t fight a major market).
  7. When the trade cannot be set and automated (overtrading is to be avoided). Patience is important as overtrading leads to ruin.
  8. Do not trade if the profit zone is not prepared and ready.
  9. High Volatility (action: decrease position size and alter tested plans as necessary)







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