When it comes to football coin tosses, deferring until the second half is a popular strategy these days. Why? There’s value in having extra information when you put your offense on the field later.
This concept relates directly to trading. Once you have an idea of what you’re looking for, there’s no need to force things when they aren’t there.
By definition, often times there aren’t elite quality trades available. As traders we have choices to make. Do we go for the lesser trades or do we defer and hold our cash until a better opportunity arises?
Generally the best answer is to defer. Think of it this way. With taking only 1-2 elite trade setups every quarter and netting 20% per quarter, we could still return 107% on the year.
Obviously I’ve over simplified it and that’s not practical. This is just an observational point that explains waiting until the right opportunity comes along isn’t going to hurt us.
As another example, a market can be tricky on a short term time-frame while sending a clear message on the longer term time frame. For traders, there’s no need to force anything, so why not defer until we have a better risk-reward entry AND more information on the market. For market analysts, you just simply defer to the larger trend.
Markets are already hard enough as is. By deferring we reduce the risks of psychological contagion from over-trading. We just never know when we’re going to stumble upon our next great trade opportunity. Why not make things a little easier on ourselves?
Trade ’em Well