Trading Psyche: Patience

Two weeks ago I began the first part of a series of posts about honing our Psychological edge in trading. It's amazing how often this comes up. Virtually every trading newsletter, educational group, and professional addresses the psychological aspects of trading at some point, and virtually all agree on it's critical importance.

I will also confess at this point, that the most recent events in the market have been trying.  As an aggressive trader using leverage, the most recent few weeks have been quite a challenge, leaving me in a substantial drawdown position.  In times like these a trader’s psychological edge is more important than ever.  If I believe in my strategy (and I do) I have to stick with it… but I’m losing.  How can that be?  Emotions want to play a bigger role when traders are under stress, and I am no different.

I've chosen to address this topic through the many emotions that a trader might experience over time. Last time, I discussed the role that Courage/Fear can play, and today I move on to Patience. Patience is one of the most difficult, yet valuable traits that great traders can acquire. Of course, some are naturally better than others, but we all suffer with impatience to some degree.

The biggest problem with impatience is that it leads to over trading. Trader's have this idea that "I am a trader, therefore I trade." It's not, however, how the pros are thinking. What is "over trading"?  Generally, it means taking trades that are close enough to your criteria, but not quite there. OR, it frequently can be identified when we take trades off before they are fully mature. With more sophisticated trading strategies it might mean making too many adjustments, or adjusting before it's really required.

Over trading causes commissions and slippage to mount, which is bad enough, but it gets worse. The plan I designed and tested... the one I have confidence in... is designed with specific trading rules in mind that make it work. The tweaks I make along the way just to trade aren't necessarily tested. The results are unknown... and may be worse.

What to do: One of the greatest skills that a trader can develop is the ability to NOT trade. Effective traders are able to occupy themselves productively when they are not managing trades. They might do research, improve their skills, backtest, forward test, read the SnapTrader blog, and perform many other important activities. I keep a list of non-trading "things to do" that help me improve my trades, while not over-trading. For the true SnapTrader, this isn't really a problem. We don't have time anyway. But for a full time trader, designing a work day that includes NON-trading time can be extremely valuable.

Good Trading…