When you shouldn't trade
By Ernie Varitimos
February 8, 2022
0:00 / 20:03
When you shouldn't trade

Tick tock, tick tock, tick tock. Let's get rid of that. We don't need that. Yeah. So it's a new feature, a countdown timer. I don't know what I'm going to use it for. I'm always ready. Always ready to go on and do the show always ready to podcast. Always ready to trade. Am I always ready to try? Adrian friends Ernie here, and this is the zero days to expiration podcast.

And this is episode number 75 entitled the subject matter for today is the times you shouldn't take the trade. I know that seems antithetical to everything that we do because every day we get prepared. We come to our desks, we clear our minds, clear our desks. Maybe we look at the market. We look at the charts, we get settled on what we might want to do.

Look at possible setups scenarios, et cetera. And we're ready to trade where we want to trade. We got to be in the market, but for one reason or another. Nothing sets up. It all doesn't look right. And you can't find that perfect opportunity or any opportunity. Should you go ahead and trade anyways? Or is there a reason not to trade? You hear many people say, taking no position is in fact, a position. There are basically three things that you can do.

You can go long, you can go short or you can do nothing at all. Of course, long in short are pedestrian ways of looking at the market. We don't look at it that way. You could also just hang out, let time be on your side. Trade time, trade volatility.

There's been this other Axiom that I've heard that says, less is more trading, less can actually result in greater profits. That seems not to jive. Right? How can you trade less and make more?

By trading less, that's implying that you're only taking setups that you believe are of the highest quality, the best trades on the planet. You limit yourself to only those best setups where you feel like you have a hundred percent confidence. Well, nobody has a hundred percent, but way more than what you normally hear.

And you feel good about it. You feel comfortable. You feel like this is the time and you enter the market. And then there are other times where nothing works out. Now we had something similar to this in the past month, and then I'm sure that many trade has felt the same thing. There was a general liquidity crunch in the entire market.

Liquidity was at its lowest point. In the month of January, 2000, I'm sorry, 20, 22 than any other time since the great crash, not the 2008 crash, but the great pandemic crash March of 2020 liquidity just dried up. There was nothing. Of course, all you really had to do is just go long. If you had the foresight, you would've made a bundle, but trading was extremely difficult.

This past month in January, it's shown that liquidity is at an all time low relative to that time. That makes it extremely difficult to get into a position when you don't have liquidity, there's no counter party. Well, there are counterparties, but there aren't enough. There aren't enough people to play with you.

If there aren't enough people to play with you, your trade sinks, you can get into something called a liquidity trap. Now a liquidity trap hurts people that are short in the market or, selling short selling options. And that's when you get into a position and by. Other measures. If this were any other time, you can see a clear path for getting out.