“Patience is a virtue” is a phrase many of us have heard throughout our lives. When it comes to trading, patience is a trader's top virtue. Having patience when entering a trade and having patience while a trade develops are integral parts of successful trading. However, understanding WHY patience is important in trading is totally different from mastering it.
Dennis Gartman, a successful trader and publisher of The Gartman Letter, said on the importance of patience: "Proper patience is needed throughout the lifecycle of the trade, at entry, while holding and exit."
The lesson: It is always tempting to chase a promising trade, and you may even get away with it now and again. But do it enough times and your trading career is at stake.
After entering the trade, you Identify your exit point, which defines where you will take profit and loss. As you watch the trade develop, it starts to move into a profitable position. According to your strategy, the trade still has more room to develop until it hits your defined target. But before you take the quick gain, the price falls below your original entry point but don’t approach your defined target. You panic and sell. Just after you exit the trade, the price moves up again and hits your target, only now you are out of the trade.
The lesson: What makes traders successful is not their chosen strategy but rather it is their ability to stick with it – even in the face of market fluctuations.
When It Hits Your Price Target
Stop loss and profit target are predetermined limit orders at which a position is automatically closed to minimize losses or lock in profits. In many cases, the price of your position will hit your target and your patience will pay off. If you have been patient and disciplined but the price of your stock barely moves – what do you do now? You might want to make changes to your target and stops. However, it is critical that your decisions are based on some predetermined criteria such as objective market analysis and current market conditions and not on your emotions. It is also important to have a reliable risk management strategy in place to protect your account against sudden market movements.
The lesson: It is crucial that you identify good entry points and make sure you have defined exit points along with stop losses without letting your emotions take control—it will inevitably lead to losses.
The Bottom Line
There are many fish in the sea, and it isn't necessary to catch every fish to succeed. And trading is like fishing. It is important to remember that there are always many trading opportunities in the market. So, the challenge is not much about finding an opportunity but making sure this opportunity fits your trading strategy and trading rules.