Patience is an important virtue that works well in all industries. Patient teachers produce better-performing students. Similarly, patient therapists become successful than those who are not. The same is true about investors and traders.
Too often, indeed, we enter a trade too early without having done a proper analysis (but be careful not to overdo it and miss the opportunity), or we exit early with the fear of losing our profit. In short, we undermine our performance.
In this article, we will look at the concept of patience in trading and some concepts to have in mind.
Patience to entry and exit
Traders and investors demonstrate the virtue of patience in a number of ways. First, there is the concept known as patience to entry. This is where a trader does analysis on an asset and identifies a possible signal or catalyst. Patience comes in because they need to wait for that signal to happen.
For example, assume that your signal is when the 25-day and 50-day moving averages make a crossover. After doing your analysis, you find that the two averages are about to crossover. In this case, since your rule is to only open a trade when a crossover happens, you need to be patient about it.
Patience to entry is also seen in other ways. For example, at times, it will take you some time to open a trade because of the volatility in the market. Therefore, in this case, patience is an important aspect because opening trades in a hurry could lead to significant mistakes.
Evaluate your exit point
Patience to exit is an equally important concept. It simply means that you should be patient before you exit your trade. There are several dimensions in all this.
For example, at times, you will open a trade, and then it moves sideways for a while. During this time, your trade will not be making any money. Therefore, you could be tempted to exit the trade and find opportunities elsewhere.
Another example is where you have opened a trade, which has become moderately profitable. Instead of waiting for the profits to add up, you get impatient and exit the trade. While you have made a profit, you have not maximized your profitability.
Last but not least, if you are using a copy-trading approach, patient to exit can cost you substantially. This is where you decide to end a loss-making trade without knowing the reasons why the master trader initiated it.
» Related: How to enter and exit a trade?
How to improve your patience in trading
Therefore, as you have seen above, there are various ways that the lack of patience can affect your trading. In most cases, impatient traders don’t last in the business do long. So, here are some easy ways to boost your patience.
» Related: Meditation and trading
Keep track of your trades
First, always have a trading journal. A trading journal is a useful document that lists important details of your trades. For example, the journal could identify the criteria that must happen before you open a trade. With a good journal, you will be at a good position to avoid making patience-related mistakes.
Second, another way to improve your patience is to embrace the concept of using pending orders. These orders differ from market orders in that they are not executed right away. Instead, they are only executed when the price reaches a certain point. These orders can help you to improve your patience in the market.
Stop loss and take profit
Third, having a stop-loss and a take-profit can help you when it comes to patience in exits. A stop-loss is a level where a loss-making trade will be stopped automatically. A take-profit, on the other hand, is a level where a trade is stopped after reaching a certain profit level. These stops should be applied depending on your risk and reward ratio.
How to spend time waiting for best entry and exit points
There are several things that you could do as you wait for the best entry and exit points. First, you could use this time to find opportunities in another asset.
For example, if you are waiting for a catalyst on apple shares, you could do some research on another asset like ExxonMobil or even a currency pair like EUR/USD. A good thing about the market is that there are so many assets that you can trade.
News & talks
Second, you could spend this time reading new materials like books, magazines, and journals. Also, there are many websites that publish quality news and feature articles about the market. Some of the ones that We regularly visit are the Wall Street Journal, Barrons, and Bloomberg.
Third, you could listen to podcasts on both finance and other industries. Doing this will help you be entertained as you wait for the entry and exit points.
Why patience is important
As you will find out, patience is an important concept in the market for several reasons. First, it will help you avoid the concept of fear of missing out (FOMO). FOMO happens when you buy an asset because it is rising or shorting it because it is falling. When you are patient, there is a likelihood that you will avoid this situation.
Second, it will help you avoid overtrading in the market. Overtrading is one of the reasons why many traders lose a lot of money. Therefore, when you are patient, there is a likelihood that you will avoid making this mistake.
Third, patience allows you to grow your profits slowly over a long time. When you are impatient, you will often find yourself opening large trades and using excessive leverage in a bid to become more profitable faster. As you will find out, this is a risky thing to do.
Patience is also one of the skills we highlighted as vital for new traders.
Patience is an important virtue that all traders have learned to use over the years. In this article, we have explained what patience is and identified some key concepts of ensuring that you are a patient trader.
As you may have guessed, it takes discipline to be able to remain patient during our daily trading activities. But this is of primary importance to avoid big losses, especially when we also get caught up in our emotions.
What is your relationship with patience? Are you a Zen trader or do you have difficulty cultivating it?
External Useful Resources
- How much patience is needed in Intraday trading? Quora