patience

The power of patience

We all like to think we have the discipline to always trade in a way that is logical and patience-lgacting in our best interests. But certain emotions can cause us to make decisions that are in direct conflict with this. There are many psychological traits that can help or hinder our trading and one that we want to explore today is patience. It doesn’t matter if you’re a longer term investor or a short term trader, patience is an asset you need to have.

For longer term investors, having the patience to stay in a stock that has already risen 20% is a key skill to develop. You have obviously decided to play the longer term moves of the markets and thus, just because a stock has risen in a short period shouldn’t necessarily mean you take your profits straight away. Long term investors are looking to ride bigger trends and therefore have to have the nerve to stay in trades even when they may be itching to close out and take their profits.

Shorter term swing traders still have to develop the skills of patience. You may have bought into a stock that has started to trade sideways over a period of a week. It is not making you any money whilst consolidating so you decide to cut and run, only to then witness the stock start to move up nicely over the coming weeks. This type of behaviour is common as swing traders panic out of positions they are in when these are doing nothing. In fact, swing traders can panic out of trades even when they are running well! For instance, you buy a stock and within two days it has moved up by 5%. The temptation to grab those profits will be very high, even though there is no logical reason from looking at the charts to realise your gains.

Intra-day traders have the same battles when it comes to learning patience. They may buy a stock after it moves up by 30cents. Just like the swing trader, they panic themselves into taking the nice profit, only to witness the stock move by another dollar by the end of the day.

In all three of these situations, the investor/trader is making money; but we want them to either be making more money from the good trades they are in, or at least to have logical rationale for exiting and taking profits.

When you next close out of a position, whether it is a long term trade or a swing/day trade, ask yourself if you exited for the right reason? If you were stopped out for a profit because you have been moving up your stop/loss, that’s fine as long as your stop was in a logical place too.

Patience comes in two forms; the patience to stay in trades that you are already in, but also the patience not to take up new positions when your entry criteria aren’t fully met. Have you ever taken new trades because you simply wanted to be ‘in’ trades? Having the patience to not trade is just as important as having the patience once you are already in.

There are so many variables that can influence our trading decisions and learning to have patience with our trades is just one of them. Mastering it is just part of the process of continuous development all of us have to go through…