One comment I make frequently over on the main site is to “wait for the market” to produce good trading setups. Those of you who read me over there understand what I mean, but the rest of you have no doubt heard the phrase. I thought it might be helpful to explain just what it means and give some examples of how it’s done, particularly because it is so important in this wild market environment.
A good trade is usually a planned trade. For me, that means scouring the charts in search of patterns which I’ve found to be repeated over time. They also give me a black & white entry and exit as they confirm or fail their patterns. My style is such that I won’t trade unless and until I see these patterns emerge. Oh sure, I’ve forced plenty of trades from the usual boredom trade to the revenge trade, but those kind rarely pay me. The ones which pay the bills are the ones which come along and really stand out from the charts, the ones which I can’t pass up.
Waiting on the market means that you don’t go hunting excessively to find a good trade. It means you do your homework [1] and take what the market gives. I’ve found that when I have to dig and dig to find a trade that it’s usually not worth taking. The best trading periods offer up plenty of opportunities for entries and new trading ideas, so when you’re not seeing what you like don’t force it [2].
The current trading environment is a sloppy one, so I’m having to put this theory into practice daily right now. After a prolonged uptrend, the market entered a corrective phase a few weeks ago and volatility is running extremely high all of a sudden. Emotions are swinging back and forth as traders take profits and fund managers worry about getting left behind every time a bounce begins. This means that the daily charts which typically offer a steady flow of multi-day trade candidates are now just not offering much without drastically increased risk.
As a result, I’ve been doing more day trading than swing trading [3], reducing my trading timeframe so that I can keep my risk in check. Even planned trades which have abbreviated timeframes (like day trades) are requiring extra patience right now, because the frequent reversals and morning price gaps which have been so common in recent weeks are preventing many of them from triggering entries. So rather than lower my standards purely for the sake of activity and put on lower-quality trades, I wait!
If you’re new to the game, be aware that trading shouldn’t be full of excitement and thrills every moment of the day. It’s easy to want to be actively trading at all times, but sacrificing your objectivity for the sake of entertainment will mean a quick exit from the game. There are times which will be downright boring as you wait for your pitch to come along before you swing the bat. Your ability to accept this fact will put you miles ahead on the learning curve, and you’ll pay far less tuition while learning the ropes.
Patience is probably the most underrated attribute of the successful trader, but it’s the one most-often exercised by those of us who make our living in the market. So whether you’re letting a good trade develop or simply looking for your next play, wait on the market to provide the conditions you’re seeking and you’ll eventually be glad you did.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com [4]
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]