Lessons from the Pros

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Long Base, Better Break

If I have learned anything in trading, it is the importance of patience with the markets. We need to be patient before and after we are in an active position in the markets. Eagerness can cause traders to enter into foolish positions or chase price. Both of those actions increase risk of loss.

Last week while we were trading in class, there was a pause and basing in a stock that we had entered into. We were already profitable in the trade and price began to move sideways along with the market. Many traders would be tempted to exit the trade for fear that they would start giving up profits. This is a very common action, but one that should be avoided.

The majority of the time, price will resume the trend that it was in prior to the basing.

Figure 1

Figure 2

So, how is a trader to remain patient and hold on for more profits? Planning the trade ahead of time allows you to identify the most likely reversal areas and can give you the confidence to hold on during basing. Additionally, proper analysis of the markets will assist you. In both of the previous examples, the broad market indexes were also travelling in the same direction as the profitable trade. The pausing in the price movement corresponded with pauses in the S&P 500 Index, but not a strong supply or demand zone in either the stock or the index.

You may have noticed that I also utilized moving averages as a trailing stop and to indicate that price had not broken trend. This is part of my trading plan and can be extremely helpful to maintain my confidence in the trade. Knowledge of how to identify and trade continuation patterns such as triangles and flags is also advantageous. We teach how to use all of these tools in our Professional Trader courses.

Trading, when done right, should not be exciting. We need to properly plan and not be anxious while our capital is at risk in the markets. Should you lose your patience, you are likely to lose your money as well. Proper education and planning is the key to your trading success.

– Brandon Wendell bwendell@tradingacademy.com

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.