Of all the characteristics a good trader may have, patience is at the top of the list. Alongside prudent money management, in-depth analysis and discipline, the exercise of patience can make or break your trading results.
So what specifically do I mean by ‘patience’? I mean both the patience to wait for high probability, ‘easy’ trades, and also the patience to let them run to target provided you still have high conviction in the trade (see the article I wrote on beliefs in trading).
Let’s start with the patience to wait for good trades. Trading opportunities do not arrive in a consistent fashion, despite what some trading ‘gurus’ will have you believe. In the FX market you may spend 3 months going sideways due to lack of opportunities, then suddenly make a quarter of your annual return within a fortnight. It’s the ability to wait for these low-risk/high-probability opportunity flows to come along that separates the successful from the struggling. This is also why it’s ridiculous to say that a trader should be making xx% return each week. A single week of trading is not nearly a large enough sample to gauge true performance. Even monthly returns contain too few trading days to provide a decent sample. A more accurate measure of a trader’s performance should be taken over a calendar year. And 3-5 consecutive calendar years’ performance is an even better measure. This is because in a single given week of trading there may not be any easy opportunities to make money. And if a trader gets it into their head that they should be making money every week then they are guaranteed to move backwards on their account.
Think about some of the easiest trades you’ve ever made; perhaps everything was lining up perfectly – the news and the technicals all pointed to a pair moving in one direction and you had high conviction and you made money. Opportunities like this do not present themselves on a consistent basis, so it’s crucial to wait for them. Imagine if there was a rule that you are only allowed 20 entries per year. In such a case you would wait for only the very best trades and most likely win the vast majority of them. Patience is truly the key here and the opposite of patience in trading is over-trading. Over-trading means entering the market multiple times per day and closing the trade as soon as it goes against you cos you have low conviction in the trade. Such attrition will erode your trading account and by the time an easy trade comes along, your win takes you back only to where you were had you not made all the low conviction entries. So start a checklist of what the perfect trades looks like to you, then only take trades that match that criteria. Don’t expect to trade every week if there’s not much going on. Conversely there will be weeks where you may enter half a dozen trades; it all depends on the opportunities the market and the world of economics is presenting.
The second facet of patience is the ability to wait for a trade to reach target. This means not moving stop-loss to breakeven too soon. Moving a stop too soon is what a trader does when they have low conviction in the trade. A high conviction trade does not need the stop moved early.
The profit target for the trade should be based on logical reasoning with the fundamental picture and sentiment in mind. If the trade still has good reasons behind it then try to avoid simply closing the position on a spontaneous, emotional response to a pullback without any news catalyst to prompt directional change. A trader should remain patient for the target to be reached instead of cutting the trade short. If the trade is hovering only a few pips away from the target then it’s fine to close manually, but closing a position that’s only halfway to target for no reason other than anxiety is a mistake.
If a trader endeavours to wait for the easy trades by exercising patience; by waiting for the trades to clearly present themselves to him rather than trying to piece together a low conviction trade out of desperation, and also waits for reasonable targets to be hit, then his trading results will improve tremendously.