It pays to be patient –
The majority of traders are aware that in order to be profitable they must be patient. However few trulyunderstand the concept of patience. Being a patient trader is one of the most difficult skills to learn, but once mastered can greatly affect a traders overall profitability. Like most other aspects of trading, patience requires discipline.
An impatient trader will often experience inconsistency, frustration and erratic trading. Impatience can be detrimental to all elements of trading, especially a traders trading plan including their entries, stops and targets,
How impatience affects trading –
Below we’ll take a closer look at some of the ways an impatient trader can see their trading negatively affected.
Entry – Impatience often leads to ‘jumping the gun’ and entering a trade too early or late. The following example will better explain the detrimental affect impatience has on entering a trade: A trader’s analysis suggests the market is going to rise, however before that rise they expect a pull back. In anticipation of that pull back, the trader places a buy order at a lower price than the current market price. Unexpectedly the market shoots up. The trader then panics and his impatience forces an error in judgment. He then enters the market at a much higher price than he wanted. Unsurprisingly that ‘shoot up’ was short lived and the market did indeed pull back to his original entry. It then continues to rise and reaches his target price. The trader is left frustrated as he exited the market with less than he should have. By being impatient and not sticking to his trading plan he ultimately did not trade to his full potential.
Stops – Stop losses are another element that can be impaired by impatience. A trader may find themselves in a trade which has been in drawdown for some time. Although they have a stop loss in place which was determined by their analysis (that so far has not been reached), the market has been showing little movement which is leading to the trader becoming increasingly impatient. The trader decides to cut his losses as he has no patience to wait and see how this trade turns out. Unsurprisingly after he’s closed his trade for a loss, the market starts to move in his anticipated direction, finally reaching his target. The trader’s impatience with the trade forced an error in judgment resulting in a loss when he really should have had a win.
Targets – Similar to entries and stops, targets are often negatively affected by impatience. It’s not uncommon for an impatient trader to close a trade early. A trader may find themselves in a trade which is moving in their direction; however they lose patience with the ‘slow’ market and decide to close their trade early. Again unsurprisingly the market continues in their direction and reaches their original target. The traders is left frustrated as despite leaving the market with a win, they did not stick to their original plan and left the market with less than they should have.
As we can see above, impatience can affect many aspects of trading. Impatience can play havoc on a traders emotions leading them to make elementary mistakes and leaving the market frustrated.
Possibly the most costly mistakes impatience can lead to is over trading. It’s not uncommon to see traders recklessly overtrading, often feeling as though they are missing out on the ‘action’ if they’re not involved in a trade. A patient trader has the knowhow and experience to sit and wait for the market to tell them when to enter a trade and not do what most impatient traders do which is ‘go looking for a trade’. Patient traders wait for high probability set ups which are inline with their trading plan before entering the market, as they know overtrading is detrimental to their success.
Impatience can be harmful to a trader’s long term success. Many new and impatient traders have the mind set of ‘get rich quick’. Their lack of patience and dreams of quick money usually result in the same outcome; loss. Successful traders fully understand the importance of patience; they’re not looking for ‘quick money’ and have the discipline to adhere to their trading plans.
Patience can’t be taught overnight, however with discipline and honest expectations a trader can greatly improve their patience and profitability. A tip many impatient traders may find beneficial is to have their trading plans written on paper in black and white next to their work stations. A trading plan on paper next to the traders screen is much more beneficial than being stuck in their head somewhere where it can easily be disregarded or lost. When asked, most successful traders will say that without patience they would not be successful. Its clear to see that when trading it pays to be patient!