Patience and Agility

One of the hardest things to come to grips with trading is that you need to hone two conflicting instincts. The first and foremost is patience. You should be able to wait patiently for a setup that you are confident is a high probability setup. However, when the setup does show up, you need to jump on it and act without hesitation.

Impatience and unrest when sitting out is an account killer and many new traders fall for this trap and blow their accounts. If you feel an urge to get back into the market right after the moment you are stopped out, you are afflicted by this trading ailment.

When traders see large bars such as b1,b11 or b20 they get anxious about missing out on a potentially huge move. They suspect a potentially large drop or huge rally that will net hundreds of ticks which they have been waiting for all their lives and are compelled to act. Subconsciously, they have made a choice that losing one more trade among the thousands of lost trades is a small risk compared to the huge gain they are going to have if they chase this big bar.

Unfortunately, huge rallies and dramatic crashes are rare. But when they do happen, it leaves a strong impression in our memories simply due to the intensity of such moments. Our instincts are tuned to prepare for such moments and we act accordingly.

To deal with impatience, develop a set of checkmarks that you need before entering a trade. Such a test needs to be simple enough that you can evaluate it in a moment and anticipate such a setup as it develops. If you have to process a lot of information at the second a bar closes, the urgency will force you into errors.

A simple three pronged test I use is the following: The trade should occur with support. For example, trade #1 today was at the low of the prior day and is a potential place of reversal. Trade #2 was the first touch of ema and at a trendline. Trendlines, ema and the high and the low of the prior day are very strong supports for your trade.

The second is a two or three legged move: Both trade #1 and #2 were two or possibly three legged move to support.

The last is a decent signal bar. While strong closes with a body at least half the bar make excellent signal bars, occasionally you can relax this constraint depending on experience. Note that the weaker the bar, the worse the pullback and the larger the required stop.

As the price action unwinds, you would keep track of these three variables and when the market sets up, you would already have made the decision before the bar closes. This ensures that your decision has been made with care and you are not forced to make a split-second decision.

At this point, you should act immediately and without hesitation. You should not be worried about taking a loss or panicking if the trade moves against you. Some amount of losing trades are normal and you should welcome them.

Once you enter, hold your ground and do not exit early. The only reason to adjust your targets are if the move is much weaker than you expect. For example, I expected a strong entry bar for trade #1, when it turned out to be weak and was followed by another weak bar, a breakeven exit is ok to take.