I started a new category here called ‘Trading Psychology’ so that I can occasionally talk about aspects of trading that are more intangible. I can tell you with zero doubt that one of the most difficult aspects of trading that has challenged me time and time again is the tendency towards over trading when there really are not any good trades to be had.
That’s where patience comes in, and that is why I posted a picture of a cheetah in this post waiting in the tall grasses of (Africa?) to scope out its target and see if if can find something interesting to chase. I don’t know how long cheetahs wait in the fields before they scope out a target and attack. But I doubt they just run into the field paws flapping everywhere and then just chase and jump on the next moving zebra over the hill.
They take their time, they scope out a target, they are extremely patient. Heck most animals and pets I know of are very patient. Certainly not all of them are, but I would say most of them are. So it is not just cheetahs.
So most traders can probably learn a lot from the cheetah and most other animals and pets. Try to avoid rushing to find a trade during the trading day, and then in panicky fashion buying something because it ‘looks good’.
I have found that the worst trades I have made were in many cases the ones that were done without enough pre planning and careful thought. Many times these are the trades that I happen to see during live market hours and then jump on without thinking. Many times they have gone bad because I was too hyped up, not patient, and too eager to jump in.
But the best online trades I have made were the ones that I noticed the day before when the market was closed, had enough time to carefully study them and then focus on them the next day seeing if they met my objectives for entry.
Part of the problem is that there are SO MANY symbols to keep an eye on and so MANY distractions during a typical trading day. Oh gee, that stock is moving! wow! let me see what it is doing, it looks great! how exciting! Oh wait, what about this other one! I wonder what it is doing…and on and on…
Instead, it would probably be much more ideal to maybe identify 1 to 3 very prospective trades per week and then WATCH them very carefully for the desired result. I would much rather earn 5 to 10% per week with a few highly probable trades than chase after 10 per week that are questionable at best.
Imagine for a moment if someone told you that from now on for the rest of your life you are only allowed to do one trade per month! How would you feel about that? Personally I would be very disappointed at this type of limitation. But on the other hand I think that type of limitation could also be very beneficial for long term success. I mean imagine if you could earn 10 percent a month for the rest of your life? Only allowing one trade per month seems like an ideal way to achieve such a goal. Why? Because it would force you to FOCUS and have lots of PATIENCE and choose only the best, highest probability trade you can find. It would also make you watch the market a lot more, instead of chasing after the market.
So anyway I thought patience in trading was worth a good mention here. It it something I wanted to remind myself of as well because it is all to easy to forget.
So in summary:
- WATCH markets and stocks much more of the time
- Let the market or stock come to YOU, not the other way around.
- Never ever forget that there is ALWAYS another trade out there, so don’t put too much pressure on yourself that you have to do a trade today or even this week.
There are a few good education CD’s on Trading Psychology in case you are interested: