This is a Guest Post by @LoneStockTrader which was posted originally here: “How To Be Patient In Trading” and is reposted here with permission.
I used to think I was a patient man. That is until I started trading.
Patience is a virtue that is vital to success in trading.
A large amount of patience is required in order to go through the learning curve.
You need patience to wait for a trade where all the variables from your system align.
And then patience is needed when in a position, in order to maximize profits.
“Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame; only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading” – Mark Weinstein
Our current world is cursed with a penchant for instant gratification. We want a person to answer our text now. We need the food to be ready now. We have to watch the entire season of a TV show now. We want to buy that watch/car/bag now. We need to get money now.
In trading, as well as in life, instant gratification usually is the enemy of success. Instant gratification makes it impossible to excel at anything. You need patience and persistence to become good at something. In fact, if you are really persistent, it’s only a matter of time before you succeed.
But without patience, you won’t be able to succeed in any field.
“You can’t produce a baby in one month by getting nine women pregnant” – Warren Buffett
My trading turned around the day I understood the importance of patience.
Studying my past trades helped me discover how many bad trades I entered just because of my lack of patience. My lack of patience (and need to trade) made me take trades that didn’t fit all my entry criteria. By having the patience to be highly selective, you can stack the odds heavily in your favor and therefore increase your chance of success over the long run.
Also, you can have the best of the best discipline to cut your losses short; if you don’t have the patience to let winning trades run, it is very likely that you will lose money consistently over time.
“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were exactly at the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine, that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.” – Jesse Livermore
Cultivating the Art of Patience in Trading
So how to be patient in trading?
Before I became consistently profitable in the market, I had to improve my patience in a big way. To do so I found several techniques that worked for me and can hopefully work for you too.
1- Get clear on your why
You have to get really clear on why it is you’re trading.
If the reason why you are trading is good and strong enough, it will be easier for you not to get carried away by your impatience.
If you’re trading because you like the excitement of winning and losing daily, or the satisfaction to show to the world you’re right on a few trades, you could have better odds in a casino.
If you are trading because you really want to be able to support your family, or be able to become financially independent, associating this goal with patience will remind you of why being patient is important to you and keep you from making rash decisions.
2- Do not focus on the money
Focusing on the money will activate your flight or flight response and make you act in irrational ways.
Try as much as possible not to associate trades with money. To do so, you can for instance focus exclusively on your charts, hide your paper profit/loss value on a particular trade, stop watching your account P/L everyday, and focus on following your trading plan, instead of how much you might make or lose.
3- Have a checklist before entering any trade
Just like pilots before taking off, have a checklist you go through before entering any trade. When you see an opportunity, go through your checklist. You’ll see right away whether you should or should not enter that trade.
4- Get busy
Getting busy during the trading day instead of watching every tick will be of tremendous help. Instead of watching the market or your positions like a hawk, have an automatic entry/exit signal that will be sent to you by email or directly to your mobile when you actually have an action that needs to be done (buying or selling). When you have this process in place, you can go on and enjoy your life, doing some research, exercising, spending time with your friends and family, shopping, … From my experience, the less you watch the market and your positions, the more your P&L will increase.
This one is often overlooked, but sleep deprivation literally steals your patience.
Having a daily practice of meditation will have a tremendous impact on your ability to be patient over time. Firstly, meditation will force you to focus on the present moment. By staying focused on the present moment, you won’t think about how much money you could lose if your position goes against you and will be perfectly alert in order to exit your position, should an exit signal be triggered. Secondly, meditation will reduce stress and improve your ability to direct your focus.
For more posts and information you can follow him on twitter at @LoneStockTrader and you can check out his website LoneStockTrader.com.