Lessons from the Pros


The Patience Quotient

When a trader in training is asked what the biggest challenge he or she faces is, the one that’s always at the top of the list is having patience. This is followed closely by the second challenge, which is learning to trust the system.

Free WorkshopSo, why do new traders tend to be impatient? This, in my estimation, has to do with several issues. The primary one is that newer traders have an eagerness to engage the markets because of their desire to make money as quickly as possible, and that’s natural. What they fail to understand, however, is that the impulses which come from always wanting to be in the markets are what lead to negative emotional responses. These can range anywhere from chasing price (buying after the move is underway) usually at higher prices, to holding on to losing trades in the hopes that they will eventually be proven right.

Instead of falling into these emotional traps, I teach students that they should focus exclusively on executing their strategy. When they do this their emotions tend to be less of a factor in the decision making process. Here at Online Trading Academy, we focus on finding institutional levels of supply and demand. This is our core strategy. Once these areas of low risk, high probability are located we teach students to place three orders. The first order is the entry and is a limit order at the closest line of the zone. The second order is a stop market order which will cut our losses short when we happen to be wrong, and, yes, this does happen. Lastly, the profit target is placed as a limit order. Identifying the S. E.T (entry, stop, and target) beforehand and then letting the trade play out helps in regard to the patience issue. This is because at the point the orders are in the market there are only three outcomes. The first is a small loss, the second is the profit target is achieved and the third is price moves too far away from entry and, therefore, the orders are cancelled.

Below is a chart showing an example of these three orders in a trade I made recently in the E-mini Russell 2000 ( TF).

TF 12-29-2014

In the second picture, we can see that it took about 10 minutes to return back to the supply level where the short took place. It then took several hours before the target was finally achieved. Some would say that it required a lot of patience to wait for the target, but that’s the whole point of having a strategy. It didn’t require any patience as I wasn’t even in front of my computer when the target was hit.

TF SET 1-21-2015 ( with profit)

Having a strategy with a set of rules will always supersede any of the shortcomings we humans possess.

In short, patience in trading requires following  a set of rules that are  based on a proven strategy. In addition, the strategy should be based on  the simple mathematics of low risk, high probability and high reward. Anything else, and impatience, fear, greed and all the other negative emotions associated with consistently losing in trading will always be an issue.

Until next time, I hope everyone has a great week.

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.

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