Saturday, October 24, 2009

The Rewards of Patience

One of the more common problems I see with traders at all levels is impatience. It can be an insidious problem and is fueled by both fear and greed. Traders are afraid that they will miss a good one if they don't have a position going at all times and that means that our greedy side may miss out on a good move.

Those emotions may lead to forcing a trade. In other words making an entry that is not ideal. The entry may be too far from an exit in the event the trader is mistaken on desired direction or it may fail to incorporate an adequate reward to risk ratio. Impatience can lead to jumping the gun as in the case of trying to catch a falling knife. That situation arises when a trader is trying to predict a bottom on a falling stock before the stock, itself, has signalled a turn. Sometimes a trader gets lucky and does catch a bottom, but more often, it seems, he catches the painful point of the knife as the trend continues down taking the newly acquired stock along with it.

The only way I know to avoid impatience is to set rules for ourselves. Unless the rules are followed and the specific criteria met, we don't enter a trade. That should be part of every trader's approach. In both "Smart Investors Money Machine" and "Trade Your Way to Wealth" I emphasize the importance of creating and following a plan that is unique to the individual trader. It is one significant way in which we can give ourselves an edge and without an edge we are not likely to do very well in the market.

As a child, I remember my mother teasing me with the old saying: "Patience is a virtue, possess it if you can. Sometimes found in women, but never found in men." Now please don't jump on me for being sexist, but I have to say there is at least a modicum of truth to that old saw. In seminars and coaching sessions, I have seen that women seem to be better at exercising patience and following rules of trading. Many (not all) men, on the other hand, seem to have more difficulty waiting for the really good entry. So, too, do they seem to have more trouble remaining in a position that is going in their direction and tend to pull the plug prematurely thereby failing to let profits run.

I think it is important for all of us to remember that we don't have to have a trade in place at all times and just because we turn on the computer does not mean that we have to make a trade. The point of trading is to try to make money, not to constantly play the game. There are many times when we may not find a great entry or a satisfactory reward to risk ratio. Those times require the exercise of patience if we are to do well in the long run. I want an edge, not constant action. If it is action we desire, there is plenty of that at the tables in Vegas, but there the edge is always with the house.

by Bill Kraft, Editor
Copyright 2009, Makin' Hay, Inc.
All Rights Reserved

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Lorey Donaldson said...


Thanks for a well written article for sure.
If I didn't look at the live action every day it wouldn't be such a temptation to stray from my rules.

Keep the articles coming,
Lorey D.

Bill Kraft, said...

Thanks for writing Lorey D. Glad you are enjoying the articles.
Bill Kraft

Anonymous said...

Beautifully stated, Bill. I can remember the pain of anticipating signals and being wrong. Rules make all the difference. Even if potentially good trades are missed, in short term trading there are always others coming along.

Bill Kraft, said...

Thanks for writing, Anonymous. As you say, there are always other trades coming so if we miss some it is OK.
Bill Kraft