Tuesday, March 27, 2007

Patience, Trading and Profitability

I stumbled across this article on patience and trading via Trader Mike's links. Although it may seem like basic stuff, it speaks about an issue that has been one of the toughest for me to master. The basic message is you must be patient with your entry points and give your positions time to work for you.

I know it sounds like a basic principle. However, it's been a tough one for me to master. I can't count the number of times I've spent all evening researching my watchlist and identifying the perfect entry points, only to jump the gun the next morning and enter before my entry point is hit. Inevitably, the stock will end up reaching the entry point I originally identified, take time to get to my buypoint, and take even more time inching higher.

There's likely a very good reason that I identified a certain entry point, most likely a pullback to breakout level or a trendline tag of support. By succumbing to my emotions, I've ignored logical analysis, lowered my rewark to risk ratio, and actually created a longer and more frustrating hold time. If I would have just waited for the buypoint, I'd actually already have a nice profit by the time the stock moves back up to my original buy point. If the stock went the other way, I would end up with a smaller loss.

A good trader must also exercise patience once in a position. I've wrote about this before, about how important it is to let your positions work for you. Just as with entry points, there is a logical reason for setting your stop just below support levels. By "micro-managing" your trades, we usually end up losing out on big gains.

One way I combat the urge to micro-manage is by taking partial profits as they come. It keeps me in the game if there is a big move, locks in a small profit and feeds my basic emotional needs.

I know it's tough to be patient, but by gettting a handle on my entry points and allowing my positions to work for me, I've become much more profitable.

1 comment:

Ayesha Jaiswal said...

Your points are so good, people will learn a lot from this content.Yes, patience is very much important in trading to earn a profit because decision taken in hurry could lead you in trouble when you see the negative situation in the market or any unexpected you should keep patience and do not take any decisions regarding buying and selling of stocks.If you are new you can refer stock tips suggested by experts to avoid mistakes and earn a better profit.