As we have discussed previously in our series entitled “Top Ten Reasons Why Retail Traders Fail” the majority of account meltdowns occur because of a very simple principle being overlooked or ignored. These “common sense” indicators are often seen as too primitive or basic to actually be effective and are therefore pushed to the back of a traders mind when in fact, those are the very things that should be at the forefront of their trading plans.
An important aspect of trading that is often misunderstood by novice and experienced market donors is the idea of patience. They hear about it, read about it, and they think they understand it but they ignore it because it seems to simple an idea to be of any effectiveness in our modern complex market systems. Let’s start by getting one thing straight, when we say patience, we are referring to the skill of trade stalking. It is a skill. It is hard work like anything that is worthwhile and it takes dedication to master the art of patient trading. Let’s take a look at how Retail traders continually donate to Professional traders by not understanding the role patience plays in high probability system trading.
Getting In Too Early
Retail traders aren’t confident in their ability to read price action in the market which in turn causes them to be uncomfortable waiting for all of their system signals. This lack of confidence leads them to jump into the market too early. They see price approaching their planned entry level but at the last moment think it isn’t going to happen so they make a rash decision to enter anyway. Inevitably what ends up happening is the market behaves as it should and a minor retracement occurs to exactly the level the trader was waiting for but now instead of profiting from the move they are taking heat on the trade because they didn’t have confidence in their ability to read the market and they weren’t patient enough to confirm their bias using the proper protocol. If they manage to ride out the heat and the trade works out they lose profits and if they get stopped out they curse the system even though they themselves didn’t follow it. This series plays itself out time and time again in the markets.
Getting In Too Late
Patience doesn’t mean waiting forever to spot the “perfect” trade. In order to save you time and money I can tell you right now that there is no such thing as the perfect trade. You will always have a voice in your head second guessing your decision making skills to enter or exit a trade no matter how experienced or confident you are in your system. Retail traders often wait for a confirmation of their bias and in doing so cancel out their edge. In order to make money on the market inefficiencies traders need to buy into weakness and sell into strength. Timing is critical. You cannot wait for the majority to come to a consensus because by the time that happens the edge and the potential profits have disappeared. Patience means waiting for your set up and then having the conviction to act when you see your set ups play out.
Holding Too Long
Just because you are in a trade doesn’t mean you get to relax. Now is the most crucial time for intelligent traders. Retail traders operate under the false premise that trade entry is the most important part of any trade. Nothing could be further from the truth. Trade management is what will separate a profitable trader from a market donor every single time. Professional traders have their targets in place before the trade is initiated. They then monitor the trade throughout the move and adjust stops and risk accordingly and when price reaches their target level they are smart enough to take profits and look for the next set up. Retail traders think a winning trade can turn into a monster winning trade. They lack confidence in their ability to repeat the process of finding another winning trade and that forces them to hold on in the “HOPE” that the move continues. Hope is a four letter word in trading and almost always leads to account draw-downs.
If you are looking to build a career as a profitable trader stick to the probabilities. Find set ups that work for you where you can easily identify an inefficiency early enough to capitalize on it and work that set up over and over again. Stay focused on your plan and have the pateince necessary to wait for your entry and exit criteria to be met before making any decisions.
Jeff Niles – Futures & Forex Analyst
A veteran in the E-mini Futures markets, Jeff has been actively trading for over 15 years. He currently serves as a Senior Analyst at Pillar Trading, the #1 Source for futures and forex trading education online. For more information on learning to trade like the pros visit www.pillartrading.com.
Disclosure: Long EUR/USD