Traders undergo specific psychological processes throughout every day’s course of trading. A watched stock will rarely move in the desired direction quickly and deliberately enough to assuage the agitated emotional state of a fearful trader. When the stocks fails to immediately and pointedly move in the predicted direction, the trader finds himself filled with the most dangerous of negative feelings: doubt.
The pyscological rollercoaster
Day traders also experience a psychological roller-coaster ride when staring at a screen to discern a profitable entry. Successful traders will calmly and patiently wait until certain that the chances for success are substantially better than a mere pull of a lever. In this situation, as in the one before, the presence of paralyzing doubt in the traders mind is the main obstacle to long-term success.
Ultimately, it is patience alone that separates the weak from strong, the patience to sit quietly in wait for the perfect opportunity, and the key to patience lies in monitoring one’s inner dialogue. All humans, conscious of it or not, experience an internal dialogue. Sometimes this dialogue helps the individual complete a certain task at hand, like when the driver of an automobile slows down and signals before making a left turn across oncoming traffic, but internal dialogue can also serve the purpose of soothing the individual and helping them remain calm and alert.
This dialogue allows the individual to remind themselves, sometimes completely subconsciously, that they have made left-hand turns across oncoming traffic countless hundreds of times in their life, and that things will be as fine this time as they were every time in the past.
Like driving a car
The patience exhibited by the smart driver cutting across oncoming traffic is precisely the type of patience exercised by the successful trader. With dozens of cars whizzing by, the patient driver’s eyes slide up the road towards the horizon, and he observes the point that will most likely be safe to cross. When that time arrives, and that slight gap in traffic emerges, he must act immediately and cannot hesitate without risk of collision.
It is the same for the day trader. If the trader looks up the road for a gap in traffic, or a proper entry point to make his trade, and decides upon a certain point, he must not deviate from this decision without planning the entire trade anew. If he decides, based on a rational trading plan, to buy at fifty five and sell at fifty seven, he has no business entering or exiting at any other point without a well thought out, logical reason.
Patience is a virtue, and no place does this truism hold more water than the stock market.
When a trader allows doubt, a facet of fear, to inform his trading decision, he sets himself up for failure. The market does not care about the wants of an individual trader, whereas when making a turn across oncoming traffic, a mistake may result only in an oncoming driver slamming on his or her brakes in order to avoid an accident.
The market will not extend such a courtesy.
It will run over anyone and anything between it and where it is going without as much as an afterthought. It is the responsibility, not of the market to go where the trader wants it to go, but for the trader to determine the most likely course of the market and plan accordingly. Patience, achieved by a trader monitoring his internal dialogue, makes it possible.
Patient Traders Win
All winning day traders possess a certain degree of patience. They wait for ideal opportunities in the same way a sniper waits to take a perfect shot. Without a high probability of success and a pre-planned avenue of escape should he miss or were something else to go against him, the trader, like the sniper, will have a mighty short career.
The successful trader sits and patiently waits.
He watches the movement of his indicators. He tempers his impatient urges to make entries into the market with reckless abandon. When the moment arrives, he is there, waiting: one shot, one kill. He has achieved his objective and exposed himself to the least possible amount of risk.
A trader may find it difficult to become more patient.
It requires, first and foremost, that the trader admits his own impatience, something not an easy feat for many people. Once the trader has come to terms with his own impatience, he must determine the way in which his impatience affects him negatively as a trader, and actively to correct the imbalance.
The trader should examine himself from the third-person perspective, as if watching a TV show, to try to determine how impatience impedes his ability to trade successfully. Is his impatience exacerbated by fatigue, hunger, risk, or all three? By determining which specific variable or set of variables causes him to act rashly and with emotion, he can drastically improve his standing in the market.
Impatience frequently signals the trader’s lack of confidence in his actions.
When faced with the fear of a potential loss, the trader may lack the impulse control and patience to hold onto a strong stock that has momentarily turned against him, but the trader must have the patience to truly examine the situation in which he finds himself. By doing so, and still determining that he wishes to close his position out at a loss, he has exercised patience and done the correct thing.
Many a time, however, the trader will find that, despite his temporary loss, he still desires to be open in the position. In this scenario patience, not raw emotion, has won out, and his trading will be much stronger in the long run because of it.
Exercising patience ultimately comes down to self-control and the ability to put off short-term wants and needs for long-term gains. The now-or-never mentality is a the worst nightmare for anyone wishing to be a successful trader. Akin to a poker player going on tilt, the trader who tries to will his way to success in the market inevitably ends in failure.
In the end, the slow and the steady win the race. Having a one-hundred percent win ratio on five trades is infinitely superior to a sixty-percent rate on thirty. Time is always on the trader’s side. Sooner or later, just as in Texas Hold’em, the trader will pull a high pocket pair – the perfect trade. He will see his entry and through his patience and thought he will understand precisely the reason for its perfection.
This experience will gradually teach him to better identify these trades until one day they jump off the screen at him. He will start to see the value of an ace-king off-suit and so on down the line until one day he has a deep understanding of how to win even with rags. On the path to this point he must never give in to the temptation to act upon impulse. He must always remember that day trading takes time. Profits will come, but only eventually. Only by remaining calm and patience can there be any long term success.