3 Impatient Trades and How to Stop Them

06/11/2012 3:45 pm EST

Focus: TRADING

Gary Dayton

Founder, TradingPsychologyEdge.com

A lack of patience can cause traders to overtrade or improperly execute, says Dr. Gary Dayton, imparting several tips that can help ensure that only the best set-ups are taken.

In addition to building your trading skills and strategies, you also need to develop patience as a trader to wait for your trade to come along so you can take full advantage. Our guest today is Dr. Gary Dayton to talk about that.

So Dr. Dayton, being a patient trader is not always easy to do. Any tips for developing that patience?

Sure, patience is a real virtue in trading, and a lot of traders have itchy fingers, jumping in and out of the market all day long, and taking large numbers of trades.

We also can think about impatience in terms of jumping out of a good trade too early before it has a chance to mature, and also jumping into a trade before it comes to the sweet spot of entry; so getting in a little bit too early and then suffering through the backup.

Just a couple of quick tips: the first one is to step up a time frame, particularly if you are trading on a small time frame, because unless you’re very good at it, smaller time frames actually encourage impatience.

Now I’m talking about the small tick, 200 ticks, 50 ticks, or even a one-minute time frame. Step it up to a five-minute chart or multiple ticks from there.

Also, take a look at higher time frames and plan your trades against them. Maybe a 30-minute chart or an hourly chart, and looking for entries and exits there, then use a smaller time frame to time those entries.

Also, listen to what’s going on in your mind. What is your mind telling you about this trade that you want to take when you’re feeling impatient? Is it because you’re down on the day and you want to make up that loss and you just want to jump into the market? Are you seeing the market run away, and maybe it’s not part of your trade plan, but you’re feeling the urge to jump on? Or maybe you’re in a trading room and you missed the last trade that was called and everybody else is sitting there with profits, so now you’re thinking you have to catch up.

Those aren’t good reasons to be taking a trade. So when you become aware of those and notice those when you’re feeling impatient and feeling that urge to jump in, ask yourself, “Does this meet my trade plan criteria? Is this a good reason to take a trade?”

We may not be able to control our thoughts, our feelings, or the market, but we can certainly control the time frame that we trade on, and we can control how we react to our internal experience that’s urging us to jump into a trade by being mindful and by asking ourselves “Does this really help me as a trader? Is this really a good trade to take?”

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