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The Power of Patience
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by Rick J. Ratchford
"Our patience will achieve more than our force."
Edmund Burke, Reflections on the Revolution in France (1790) p. 205
It is a well known saying that 'patience is a virtue'. This is true
since very few can actually be considered patient in this hussle and
bussle world we live in.
Patience is a very powerful attribute. It manifests control by those who
practice it. Philippians 4:6 mentions, "Do not be anxious over
anything..."
Patience is also a virtue to have when engaged in trading. Time and time
again the markets seem to reward those who are patient. Patient traders
seem to display a certain air of confidence and control, acting only
when the time is right.
Ask yourself, "Am I a patient trader?"
To help you with this self-examination, see if any of these following
actions describes your trading at times:
1) The market moved to where I expected it to go, but I did not get in
on time. Now the price has moved substantially in my direction. I've got
to get in or I'll miss a big opportunity. I'll just enter right away at
the market.
2) I know the trend is down, but I believe it is finally the bottom. I'm
going to enter to go long at this point.
3) Well, the market trend is down and we have been rallying up. I
believe the rally top is in although it hasn't really hit any resistance
price that I know of nor do all my signals/tools say it is time, but I
don't want to miss this shorting opportunity. If I don't act now, I may
never get in.
4) I know that this market is going to top soon and then plummet down
for a long time. I will be ready to short it. But until then, I want to
be in this market. Therefore, I'll go long this market now until the top
is in.
Sound familiar? Each of these examples displays some lack of control, or
patience. The outcome can be very costly. Consider...
The first scenario shows one who has the mentality that this is the only
opportunity that will ever come his/her way. Missed the earliest entry
point and is now willing to chase the market and enter where the risk is
much higher. Many times, these ones find they are entering right when a
retracement is to occur, getting themselves stopped out with a loss and
again chasing the market or becoming unable to execute the trade when
the time is right.
PATIENT Trader: The patient trader realizing that he/she has missed the
entry point will patiently wait for what happens more times than not,
the market later retraces back not exceeding the previous extreme (top
or bottom) thus allowing a much lower risk entry into the market.
The second scenario is shows one who is ichy to enter the market. Going
against his/her own rules ( in this case, trading with the trend) and
going by gut feeling, the rule is thrown out. Now, intuition is a good
thing, but it should be coupled with discipline and patience. What
usually happens here is that the market continues in the direction it
was going and the trader than is left guessing the next bottom, and the
next. Losses pile up with the trader later unable to execute a proper
entry when confirmation finally arrives.
PATIENT Trader: The patient trader realizing that the trend is down and
that a bottom may be due soon will wait for the bottom to occur,
possibly some accumulation, then the breakout to the upside before going
long. He/she may even wait a little longer after the breakout for prices
to retrace back to the point of the breakout which makes a very good low
risk entry location.
The third scenario is where the trader is anxious to enter in the
direction of the trend, but does not wait for any confirmation that the
rally has run its course. He/she feels that the wait may result in a
missed opportunity, and enters at what is believed to be the end of the
move. Many times, the market is correct in its behavior by continuing to
rally until resistance is found, stopping out the impatient trader.
Losses occur and soon this trader again starts to second guess whether
the rally is really going to end soon, which it does and goes without
him/her.
PATIENCE: The patient trader has self-control and waits for his
indicators to tell him when to enter. Even if the market 'appears' to
have ended its rally, if it does not meet certain criteria the trader
had previously set for himself, he will wait. Most times, the move does
confirm with the traders indicators and a low risk entry is performed.
The fourth and last scenario is when the trader knows the market is
going to make a big move down, but gets anxious and does not want to be
on the sidelines waiting. Instead, he enters in the opposite direction
that he soon expects the market to go, only to find the market starts
down sooner than expected and he ends up with a loss. Still thinking
long, he likely re-enters long again on each down move bottom and fails
to see he is trading against the move he was originally waiting for.
PATIENCE: The patient trader exercises restraint and waits to enter in
the anticipated direction of the market once confirmed by his
indicators. Not feeling the need to just be 'in' this market, he may
stand aside or trade elsewhere until the time is right. This trader then
does not get 'caught up' in constant entering of the market against his
original analysis not being able to see that it has indeed started
already.
Early on in my trading career, several years ago, this was my personal
experiences. My articles are usually the product of past mistakes of
which I can share with others so that they can learn to avoid
duplicating them.
The last scenario was a real eye opener. Back in 1991, after having
watched Live Cattle take a nose dive during March and April for 2 years
in a row, I looked back in history to see that it had done so
consistently the last 10 years. So, come the next year, I 'knew' it
would do so again.
However, I just wasn't patient enough to wait for a signal that the top
was in and it was now going to start dropping. I figured that I could
ride it up until this top occurred. So, I went long on dips.
The problem here was that the market made its top a bit earlier than I
had anticipated, and I couldn't see it because I was busy 'looking' for
places to go long. It would make lower dips stopping me out with losses
each time. Once I realized what I was doing, half the move down had
already occured, thousands was lost, and I became discouraged to enter
this market for some time afterwards.
A trading companion of mine is constantly itchy to enter the market
because it hit some known support or resistance price on an Fdate, for
example (FDates are time days from my Fdate program). Yet, it may be
against the trend. However, he always feels he will be missing a great
opportunity if he waits to follow 'all' the rules. Let's just say that
his win/loss record suffers due to this.
Patience is power. We all have the ability to harnass and use this
power. Make it a point to exercise control over your emotions and stick
with a plan. Follow the plan to help you develope this patience. If you
write down what is necessary to happen before you enter a particular
market, and stick to it, this may help you to have control.
Do not be anxious when it comes to trading. Opportunities abound, and
have done so over and over again, year after year. You will find them,
ride them, if you have the patience to wait for them.
Whenever you lose a trade, ask yourself if it was due to a lack of
patience. You'd be surprised at the answer you will come up with if you
are honest with yourself.
Good Trading!
cheers!
:)
rick
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