Mindset

Patience

So what is it that separates the successful from those who fail? If you ask anybody who has studied trading for any period of time, they will answer ‘psychology’. Essentially, your mental ability to manage losses and profits and the good and the bad times in trading, manage risk, to not become too greedy and many others are all encapsulated under the heading of ‘trading psychology’.

There are also a number of character attributes that successful traders have to include discipline, commitment and motivation. An often overlooked and underestimated character attribute is patience.

Patience is a factor in a number of different situations in trading. First, considering a potential trade requires patience. You may be considering a trade and conducting your analysis, weighing up the various criteria you normally use.

For example, you may be analysing a chart and identify an ascending triangle forming with the top of the triangle positioned at $1.00. The security may have closed at $0.94 the previous day and you are now considering an entry based on the reliability of the triangle pattern.

Part of you wants to enter the trade now at $0.94 while another part of you suggests that you wait for the security to break the top of the triangle at $1.00 and then enter. Which approach is correct? On one hand, you purchase the security at $0.94 and enjoy more gain than should you purchase it at $1.00 however you have no certainty that it is going to trade beyond the present resistance level.

On the other hand, you have purchased the security at a higher price (just above $1.00) however with the certainty that the resistance level at $1.00 has now been broken and is likely to now become a support level for the near future.

The second approach may be the wiser approach and likely to be more profitable in the long run however a degree of restraint is required to follow it. A trader needs to be patient to wait for the $1.00 level to be broken as opposed to entering the trade now and purchasing the security at a cheaper price.

Sometimes when you enter a trade, there is a sense of optimism that this will be the one that makes your year. The analysis may have been thorough and the security met all of your criteria. Then after you enter the trade, it moves very little in the short term after. Due to your thorough analysis and optimism, you may have subconsciously set an unrealistic expectation for this trade. When in the immediate future after entry, it fails to meet those expectations, you may get frustrated and close the position in disappointment, even though it may still be meeting your entry criteria. Patience is required in this situation.

Another problem that some traders face is even when they set themselves a realistic goal of 20% per year for example, they then expect to achieve that return in the first few weeks as opposed to taking a longer term view over the 12 months. 20% per year is only just over 1.5% per month yet some traders will expect to achieve that quickly and may adopt some poor trading habits. Patience is an important character attribute that traders need.