January 03, 2008 at 1:09 pm | | Comments 6

Patience Takes Courage

Trading means many things to different people. Some love the excitement and the thrill of a financial adventure. Some people want something to talk about and discuss, while others simply want a hobby. However, plenty of us are in it for the money.

For those who are purely seeking profits, there are many ways to play the game. Different approaches and timeframes will require a variety of strategies, but we all have something in common: if we choose to play at the wrong times, it’ll cost us.

Opportunities will surface on a regular basis though, regardless of your trading style. A big part of becoming a consistently profitable trader lies in the recognition of those circumstances, so it doesn’t simply boil down to selecting a strategy. The proper implementation of your strategy is what matters most, and if you aren’t seeking to learn that then the market won’t hesitate to teach you.

I like to trade actively. The market’s always in motion, and that means certain stocks are on the move as well. It can be so easy to step off the sidelines and into the game, but timing is the biggest issue in whether those ventures will be profitable or not.

There have been some big moves in this market for the past couple of weeks, and that means there has been no shortage of opportunities. However, the moves have been swift and violent, so they’ve catered to a certain type of trader. The contrarian is one such trader, who may have been calling for a top on the way up and initiating short positions as the market climbed. Obviously that meant some pain while the advance was underway, but now it means profits. Another type of trader who has been able to benefit from the recent conditions is the momentum scalper. They are willing to chase stocks which are already on the move, darting in and out quickly to catch snippets of the moves, adding numerous small gains together to make their day’s pay.

While I have traded each of these strategies at different times in the past, neither one defines my current style. That means that when conditions changed quickly recently, my best plan was to shift into capital preservation mode. Recognizing the change of market character has saved me considerable money these past several weeks, while others have fought and lost because of their unwillingness to protect their trading capital.

Every one of us has a choice of how to manage our trading business. We can throw caution to the wind and hope that we get lucky, or we can be methodical in our approach and choose a path which improves our odds of survival at all times. Choosing the latter keeps us in the game, allowing us opportunity to collect profits when conditions do cater to our specific style.

Trading success does not come easy – we have to earn it. That includes putting in the week-to-week effort, but it also means controlling our emotions and urges in such a way that we stick with our game plan. At times those plans may need altering, but that generally comes after a prolonged period of having something else work better.

Right now the market is trading with higher volatility than we’ve seen. Of course there’s no way to know just how long the extreme moves will stick around, but fortunately as traders it isn’t our job to predict. All we have to do is react to what we see. At some point we’ll see calmer conditions surface, and that’s when those of us with a multi-day to multi-week trading timeframe will be able to return to higher levels of activity.

Until then, protection of capital is the top priority, and we simply must be patient until our favorite conditions return. That way we can pick up where we left off. It may be uneventful while we wait, but it certainly beats the situation so many others are now in who have to make up lost ground. Don’t insist on activity if you don’t see what you like. Have the courage and discipline to wait for your pitch, and if you’re new to the game spend some time determining just what you need to see in order for your strategy to work. It’ll be well worth it!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

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  1. Great article Jeff. Hope your holiday was a good one.

    Hey, I agree with you on the week to week effort to earn trading success. It took me awhile to learn this rule applies to all areas of life. There are very few overnight successes. It’s the daily grind, the incremental daily progress that makes you great.

  2. Thanks Jonathan,

    I agree with you in that it does apply across the board. Waistlines are being trimmed this time of year, budgets are being set, and of course new trading goals are decided. But just like you stated, that incremental daily progress is what truly produces the desired results (kinda like compounding money now that I think of it)!

    I still check in at ATradeADay to see what you’re doing and always enjoy the read. Keep up the great work!


Trackbacks: 4  |  Trackback URL

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