This Monday in the Active Trader Mentoring session I did a detailed lesson about what it really means to be patient in trading (see video). Your ability to control your impulses is such a key ingredient on long-term success. Can you succeed over the course of a few months or ever a few years without possessing the virtue of patience? Sure. But I believe that if you are not patient and disciplined, failure is not a question of “if,” it’s question of “when.”
Based on my experiences as a trader and educator, almost all consistently profitable traders possess a certain degree of patience. They wait for ideal opportunities in the same way a jump-shooter waits to take a perfect shot. Traders must learn to sit and patiently wait. Learning to temper the impulses that drive you to want to do something in this business is not only a skill, but an invaluable asset.
Patience not only relates to waiting to get into trades, it relates to how you manage trades. Real patience is possible when you have supreme conviction in your ideas. Many traders have a tough time letting winning trades run because they get impatient looking to book a winner, even when the stock hasn’t yet reached your pre-determined target.
So how, you may ask, does a trader go about working on the patience “skill”? The first step is admitting your own impatience and shortcomings, something that is not an easy feat for many people. Once the trader has come to terms with this, he or she must determine the way in which impatience affects them negatively as a trader, and actively work to correct the imbalance.
Exercising patience ultimately comes down to self-control and the ability to put off short-term wants and needs for long-term gains. The now-or-never mentality is a the worst nightmare for anyone wishing to be a successful in this business. It’s akin to a poker player going on tilt. Overcome by the emotions of recent hands or trades, the poker player or trader cannot stop themselves from getting back involved, even if it is not a compelling opportunity.
In the end, the slow and steady thinker will generally win the race. The day I realized that as a trader time is on my side is the day I think I actually began to tap into my real potential. Sooner or later, just as in poker, the trader will pull a high pocket pair, or the perfect trade set-up. That doesn’t mean you will always win the hand or profit from the trade, but it stacks the odds in your favor.
For every trade, you should clearly outline the entry plan, the risks and the potential outcomes. Patience is a habit, and you must consciously plan out each trade until it becomes second nature.
*DISCLOSURES: Evan Lazarus is short NFLX