The Patience Quotient

01/28/2015 6:00 am EST

Focus: STRATEGIES

Gabe Velazquez, of Online Trading Academy, discusses the two challenges that traders must learn to overcome; a lack of patience and the inability to trust the system. But he also offers a solution that requires following a set of rules, based on having a proven trading strategy.

When a trader in training is asked what the biggest challenge he or she faces is, the one that's always at the top of the list is having patience. This is followed closely by the second challenge, which is learning to trust the system.

So, why do new traders tend to be impatient? This, in my estimation, has to do with several issues. The primary one is that newer traders have an eagerness to engage the markets because of their desire to make money as quickly as possible and that's natural. What they fail to understand, however, is that the impulses which come from always wanting to be in the markets are what lead to negative emotional responses. These can range anywhere from chasing price (buying after the move is underway) usually at higher prices, to holding on to losing trades in the hopes that they will eventually be proven right.

Instead of falling into these emotional traps, I teach students that they should focus exclusively on executing their strategy. When they do this their emotions tend to be less of a factor in the decision making process. Here at Online Trading Academy, we focus on finding institutional levels of supply and demand. This is our core strategy. Once these areas of low risk, high probability are located we teach students to place three orders. The first order is the entry and is a limit order at the closest line of the zone. The second order is a stop market order, which will cut our losses short when we happen to be wrong, and, yes, this does happen. Lastly, the profit target is placed as a limit order. Identifying the S.E.T. (entry, stop, and target) beforehand and then letting the trade play out helps in regard to the patience issue. This is because-at the point-the orders are in the market there are only three outcomes. The first is a small loss, the second is the profit target is achieved, and the third is price moves too far away from entry and, therefore, the orders are cancelled.

Below is a chart showing an example of these three orders in a trade I made recently in the E-mini Russell 2000 (TF).

chart
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In the second picture, we can see that it took about 10 minutes to return back to the supply level where the short took place. It then took several hours before the target was finally achieved. Some would say that it required a lot of patience to wait for the target, but that's the whole point of having a strategy. It didn't require any patience as I wasn't even in front of my computer when the target was hit.

chart
Click to Enlarge

Having a strategy with a set of rules will always supersede any of the shortcomings we humans possess.

In short, patience in trading requires following a set of rules based on a having a proven strategy that is based on the simple mathematics of low risk and high probability. Anything short of this and patience, fear, greed, and all the other emotions associated with consistently losing in trading will always be an issue.

By Gabe Velazquez, Instructor, Online Trading Academy

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