One of the hardest lessons a trader learns is to do nothing at all. Being able to sit still, watch the screen and resist the temptation of firing off a trade is too much for some people. The Internet, the amazing drop in commissions, and the pulsating and riveting graphics of online trading programs have made it almost impossible to resist trading on impulse or inspiration. Is it really that unlike the casino with computer monitors replacing slot machines? Many people learn this lesson the hard way. It’s only when their account values drops to levels that are painfully low do they wise up. Then again some lose it all before this happens.
All successful traders and market wizards cite the ability to be patient as one of the key ingredients of their success. Warren Buffett likes to compare it to a batter coming up to the plate. Unlike baseball, there is no three strikes you are out rule. You don’t have to swing. You can wait and wait and watch one pitch go by after another until you get that “fat” pitch that you know you have a good chance of hitting.
Waiting for the opportunity though doesn’t apply to just buying. It’s even harder for many people to determine when to sell. I know it is for me. My most consistent self-criticism usually revolves around my decision to sell not to buy. I read where one super successful commodities trader put a position on that was working splendidly for him. He continued to leverage the trade into gigantic profits. Unable to resist taking profits, the trader left the country and traveled somewhere where he knew he would not be able to get quotes or news on the trade much less exit it. Some times waiting is the hardest thing to do. Sometimes doing nothing is the smartest thing to do.
When I feel my compulsive desire to trade coming on, I’ll drop everything and hastily drive to the ski slope to get a few market distracting turns in. Now that ski season is coming to a close, I’m really worried about what I’ll do to compensate for my trading proclivity.
Don’t mistake patience though for paralysis. I much rather would have a case of itchy fingers than a lack of conviction. Post or comment on your own experiences of waiting for that fat pitch if you’d like.
Some things to keep in mind:
- Be Patient- wait for the opportunity
- Trade on your own ideas and style: Never trade impulsively, especially on other people’s advice
- Don’t risk too much on one event or company
- Stay focused, especially when the markets are moving
- Anticipate, don’t react
- Listen to the market, not outside opinions
- Think trades through, including profit/loss exit points, before you put them on
- If you are unsure of yourself about a position, just get out
- Force yourself to trade against the consensus
- Trade pattern recognition
- Look past tomorrow, develop a six month and one year outlook
- Prices move before fundamentals
- It is a warning flag if the market is not responding to data correctly
- Be totally flexible; be able to admit when you are wrong
- You will be wrong often; recognize winners and losers fast
- Start each day from last night’s close, not your original cost
- Adding to losers is easy but usually wrong
- Force yourself to buy on extreme weakness and sell on extreme strength
- Remain confident- the opportunities never stop
Via: The Sax Angle.