How much is impatient trading costing you?

Last updated: 20240324

Patience is a virtue (especially for traders)

Many people say that patience is a virtue and that is defiantly true in trading!
Although the very best traders understand the importance of patience, it is still one of the most difficult skills to learn and apply as a trader.  

Most unsuccessful traders trade with little or no patience and it is therefore critical to understand why patience is one of the most important “ingredients” to becoming a successful trader, and can actually make you money faster.

Trading Patience

It takes real patience to wait for ONLY the trades as defined in our back tested, positive expectancy trading plan. This way we are only trading when we have a positive edge/expectancy, ie we ONLY participate in the market when the odds are in our favour.

This does not mean that every trade will be a winner… far from it, but it does mean that over a large sample of trades, if and only if we are patient to wait for our defined setups, then the odds of success are more in our favour.

What are the signs of impatient trading?

Lack of patience in trading can manifest as:
  • a tendency to over trade
  • feelings of wanting to be in another trade straight after exiting a winning trade, or straight after a losing trade to try and make back those trading losses (revenge trading)
  • meddling with your trades too much by moving stops and targets around multiple times after entering a trade
  • taking smaller profits than your original planned target, or taking profits too early at the slightest sign of movement against your position
  • feeling compelled to trade every day. Remember the market will be there tomorrow and you are better to wait for the higher probability trades, even if it means being on the side-lines some days, then to have traded lower probability trades, due to being impatient, and have lost money.

Do you recognize any of these traits in your own trading?

The difficulty is not in finding trading opportunities, but instead making sure the trade fits your own trading plan/rules!

Stuart Young

Patience is critical to be a successful trader

When looking to enter a trade, patience is critical to ensure all of your entry criteria are met (all of the “ducks are lined up”) and to leave the trade alone if they are not. Ever seen a trade setup so close to your criteria but not fully complete, only to see the market start moving in the direction of your trade? Impatient traders often enter the trade quickly fearing they will miss out, only to see the trade turn against you? Remember, the whole point of having of having a positive expectancy trading plan is so that the trades we do enter have greater odds of success.

If we are impatient and not wait until all our entry criteria are present, then we are NOT entering where we have greater odds of success, therefore eroding our edge.

Exhibiting patience with a good trade setup requires confidence in your trading plan/system, having a probabilistic mindset and an understanding of why impatience actually decreases our trading edge. The same logic applies to giving the trade time to develop once you have entered, and for trade exits and profit taking.

Do not be an impatient trader

Patience is also critical, not just in specific trade executions, but also as we are on our learning curve to becoming a successful trader.
We need patience in allowing ourselves to:

  • develop and test a trading plan that not only has a clear positive expectancy, but suits our personality, then
  • trade our plan in a simulation environment, then
  • commence live trading with small position sizes to build confidence, then
  • progressively increasing position size only once key goals are reached, and
  • to allow ourselves to make mistakes, learn from them, and apply these lessons learned.

It’s not a race and by being impatient and therefore lacking discipline, can not only extend your learning curve more than it needs to, but have disastrous consequences on our precious capital.

By slowing down and realising that you must be patient to trade only the higher probability setups, you will inevitably build your trading account faster than if you try to “force” the market into making you money by over trading or taking low probability trades.

Embrace patience

By understanding why being patient over the long term can actually make you money faster, we can start to embrace patience in our trading and recognize that it is actually one of THE MOST IMPORTANT ASPECTS OF SUCCESSFUL TRADERS.