Want to know what is the greatest enemy of most traders? Patience. Most of us simply get in and out of our trades way too quickly making our entries too early and taking our exits too fast. For those of us who trade on intra-day basis the problem is even worse as we are often tempted to trade just for the sake of trading and one impatient decision can erase half a days work.
As speculators we have only only one true edge in the market – selectivity. Investors have much more capital than we do and are able to weather wide swings in price. Market makers have much better information on flow and while making money from bid ask spreads. Both of those participants can remain in the market on near permanent basis. As traders we don’t have such luxury. But we do have one serious advantage – we don’t have to play the game when there is no meaningful activity. We can sit on the sidelines for as long as we want. Unfortunately, that’s something that very few of us do.
I certainly can’t do it very well. My need to be involved often trumps the good sense to be selective and I wind up paying for my impulsive actions over and over and over again. In fact I know that if I was more patient my P&L would improve markedly.
Depending on your time horizon trading requires two different types of patience. If you are a short term intra day trader patience in timing is much more important than getting an optimal price. Essentially you need great patience in entry since your targets are relatively close and will likely be hit if you are correct in your analysis of the price action but so will your stops if you are wrong. On the other hand longer term positional traders typically have much wider stops, so they can often survive the ebb and flow of intra day price action but have a difficult time in holding their position to the target profit. Basically short term traders needs patience with their entries, while longer term traders need patience with their exits.
One of the great ironies of trading is that we often focus all of our energy on money management and never consider the importance of patience to our overall success. After a while almost all of us learn to take stops, to avoid doubling down into losing positions and to control our leverage, Yet few of us work on learning how to be more patient which ultimately may be the true key to long term success.