Good Traders Know When Not To Trade

"Flat is a position too" is a saying that traders sometimes use when they are waiting for their next trade, or when they are avoiding a trade, but what does this saying actually mean?.

Being flat means that a trader does not have any active trades (i.e. they are neither long nor short), and having a position usually means being long or short (i.e. in an active trade). Therefore, the saying "flat is a position too", means that not being in a trade is just as important as being in a trade. In other words, waiting for a trade is equally as important as being long or short. Being flat is also sometimes known as sitting on your hands, because you can't enter any trades if you can't use your hands.

Discussions about day trading are often focused upon when to enter trades, how to manage trades, and when to exit trades, but very few focus on when not to trade. This is unfortunate, because knowing when not to trade is as much a part of trading as entries and exits, and trading at the wrong time can quickly wipe out any profits that have previously been made. New traders often think that the only way that they can make money is to take trades, so they take as many trades as they can. Conversely, professional traders are perfectly content to stay flat, because they know that protecting their profits is better than taking a losing trade.

Knowing when not to trade can be based upon a specific chart pattern that cancels any further trades, or it can be based upon being familiar with a particular market (the latter usually only comes with a lot of experience). Whichever method you use, remember that flat is a position too, and don't be afraid to sit on your hands the next time you are considering taking a marginal trade.