Don’t Force It – Patience Pays

A common problem encountered by novice retail traders is their overwhelming desire to trade, no matter what the market is doing.  They switch on their laptop or PC check their charts and expect to get into a trade and make some money during the time they have allotted.  Many end up ‘Forcing’ a trade and this approach can lead to losses.

We have found that waiting for a quality set up and entry signal pays greater dividends over time.  Yes, you will be in fewer trades, but that doesn’t mean less profits, in fact the opposite is nearer the truth of ‘Less can mean More’.

To be successful with this approach, as Sunil Mangwani so often says and constantly reminds me, you need the ‘Patience of a Saint & the Discipline of a Soldier’ to be a consistently profitable Forex trader.  Waiting for a quality set up may mean you miss what seems like a potentially good trade but it also means you don’t get sucked into a losing trade.  If a slightly dodgy set up occurs and goes in the desired direction, don’t chase price, wait for a decent pull back and then join the party but when you take that trade make sure it is a quality set up based upon one of your chosen, tested and proven strategies.

Endless entries into poor trades will eventually cause one’s trading account to be quickly depleted.
So try and think of yourself as a soldier waiting in ambush or a wild animal waiting for its prey to come by and then at the right moment pounce and execute the trade.  For both these examples failing to pick the right moment could mean the difference between life and death so try trading as if your life depended upon it and bring some real focus, patience and discipline to your trading and let me know if it makes a difference.

Top Trading Tip: It is better to be Patient and wait for a quality trade set up to occur before taking a trade than being impatient and trying to force a trade.  Try and be patient and disciplined in your trading as this should reap dividends over time.  Remember ‘Patience of a Saint and the Discipline of a Soldier’ and lie in wait for your foe!  Less can really mean More.

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Who or What Is Pulling Your Strings?

When you are trading do your emotions drive your actions?  Do you chase price, only to have the market turn as soon as you pull the trigger? Do you bail out of a trade as soon as it looks like it could go against you? If so you are probably at the mercy of the 2 key emotions that can stop you becoming a successful consistently profitable trader, and they are FEAR & GREED.  Fear can lead HESITANCY which can make you fail to take a potentially good trade and Greed can lead you to take on too much Risk and make poor unplanned entries and eventually probably blowing up your account.  Lastly the result of poor trades due to all the above can lead to UNCERTAINTY, with you wondering what the heck is going on in the markets

The best traders have learnt to control their emotions when trading.  How have they achieved this?  By knowing their chosen strategies inside out, backed up by a robust Trading Plan and historic data which proves their strategy works, if implemented with constancy and accuracy over a period of time.  If ever uncertain about the markets or a particular trade then check your plan and if necessary stay out!

All traders have losses but the best traders minimise their losses by precise implementation of their strategies and using strict Risk and Money Management.  Having such a robust Trading Plan and following it to the letter, provided the right market signals are given, leads to unemotional trading, but you do need to understand and work on one’s own Psychological Trading profile.

My own Psychological Trading profile is that I have an impulsive nature when trading and thus I have worked on developing my trade planning, patience & discipline, but more on the latter two topics in a future blog.

If you need help with any of the any of the above here are a few pointers:

• Great Book on Trading Psychology:    
• Personal Mentorship & Workshops
• Trading Beliefs

Top Trading Tip: Try and plan down to the last detail every trade you take as this can take the emotion out of the equation.  Try and focus on the process and not on potential gains or losses.  Also give some thought to and try and identify and analyse what your own Psychological Trading Profile is, as once recognised, you will be half way to addressing it and improving your trading.  And If you are ever in doubt then stay out!

Stop, Stop, Stop!

It is often said that ‘the best Stop is a great entry’, meaning that as soon as you enter the market price moves in the direction of the trade and never goes near your Stop.  This takes time and practice to achieve but is a laudable target to aim for.

I also remember being at an International Traders Conference a few years back and trading live with some top traders and as the novice traders inevitably asked the question ‘Where would you put your Stop?’ you could see the expert’s eyes glaze over!

So to answer that novice’s question and put it to bed, here goes ……

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• Firstly, I recommend always use a Stop Loss to manage your Risk.

• Secondly, it depends upon what strategy you are using and what that requires, which you will, of course, have back tested a thousand times over before trading live. 

• Thirdly, your Stop Loss should be placed just beyond a particular technical level, plus an allowance for the spread, beyond which your trade plan is wrong and you definitely want out.

• Fourthly the size of the required Stop will dictate (along with your account size) your position size.  So if you have a tight Stop your position size can be larger, but if you have a large Stop you will probably have to reduce your position size, so that your risk on any one trade remains fairly constant.

A technical level is above or below a key support or resistance level, beyond a pivot level or a key fib level and so on, but a point beyond which you know your trade was in the wrong direction.  If you can’t manage you risk because the Stop is too big then stand aside and wait for a better setup. If you need help with these concepts then maybe you could benefit from attending our next Forex Mastery 2 Day Workshop in London.

Top Trading Tip: Always use a Stop Loss and place it beyond a technical level (also allowing for spread) and manage your risk by altering your position size to match your Stop size, so that your Risk remains fairly constant for every trade.  If you can’t do that because your Stop is too big, then stand aside and wait for a better set up to occur.