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Trading Education Posted by Team Topstep February 18, 2021

Taming The Impatient Trader

I recently had the chance to speak with a trader who retired from the institutional world but continues to trade his personal account. In all his words of wisdom, perhaps the most profound statement he made was one of the simplest truths of common knowledge. Looking back over a successful career, he assessed that skill, analysis, and intelligence were only secondary factors contributing to his achievements. The primary factor, in his words, was learning how to be patient with the markets. 

His statement caught me off guard, and it shouldn’t have. After all, having both observed and worked beside professional and retail traders has continually reinforced this perspective over the last fifteen years. Traders that make it over the long-term develop an envious characteristic of patience. Meanwhile, traders who fail to grasp the simple personality trait tend only to survive short-term. , there is no indicator, or expensive software that we can buy that will suddenly produce patience. 

Patience is a Challenge

Patience is one of the most challenging traits to acquire. It is essential to trading and every aspect of life. I’m confident that all successful people have learned how to be patient, at least in some contexts. However, trading often uniquely engages human emotions as our money, and perhaps even our livelihood is at stake in every decision. Furthermore, traders must be quick, and make decisions without delay, processing a great deal of data in a short amount of time. 

I have seen traders who had the best software and even excellent trading systems and could not understand the missing element. In my observation, discipline is often the neglected “holy grail,” and patience is at the core of that grail. Furthermore, I’ve often witnessed unsuccessful traders learn the wrong kind of patience.

It’s difficult to see a trader be very forgiving of losses and patiently hold onto trades that are working against them while being ruthless with winners, taking profits way too quickly. This is something many of us have likely been guilty of at some point in our trading career. It is very indicative of the psychological compromises we make under the pressures of the markets. 

A Minor Disclosure

Today, I intend to pass along some of the ways that I have found that help traders overcome a lack of patience. These methods are no absolute way to retrain our thinking and magically develop positive character traits. However, these methods are ways to compensate and offset this weakness potentially. 

Before I continue, I must acknowledge something that I have articulated in many other articles. There are no one-size-fits-all techniques in trading. Our personalities, habits, strengths, and growing edges are diverse as we are people. For instance, a trading system may be perfectly ideal for a left-brain-oriented person, while the same method might be unsuitable for a right-brained person. 

So if you are battling impatience, one of these ideas may help you, but it is improbable that you would benefit from all these ideas. Mind you, none of these ideas are particularly profound, but they often remain neglected.

Check Your Trading Size

The first way to potentially combat impatience is to trade smaller. I consulted with a trader who was committed to learning to trade the S&P 500 futures. His system required multiple contracts to be long-term profitable as he needed to scale in and out of positions responsibly. However, when trading the e-mini contract, he would grow impatient as he watched what was to him to be substantial price changes.

Even though he had an appropriate risk to reward ratio for his account size, it was hard for him to watch the fluctuations in his account at $50.00 per tick when holding four mini contracts. 

When the e-micro contract was made available on the S&P 500, this was a lifesaver for him; he developed patience holding several of these contracts at a fraction of the tick value. The success of this accomplishment was his becoming more comfortable with his work, and eventually, he was able to build his confidence and resume trading the mini contract successfully. 

Simply put, the less money he had at risk, the more patience he developed. Now, you can take this fundamental concept and apply it to your situation. It may be that there is a smaller contract size for you to trade in your market, such as if you are trading the 30-year bond futures, you can get similar price action out of the 10-year note for a smaller size. Or it might be that you need to reduce the number of contracts you are trading. 

Expanding Your Timeframes

In whatever ways this could potentially apply to you is your decision to make. However, this is the first layer of advice for impatient traders, a piece that can benefit nearly anyone who is struggling with this. 

The second idea is to trade more extended time frames. This one can be tricky and is most definitely not for everyone. You must decide how this idea could work with your account size, products traded, and risk to reward. However, I will give another example to help you get an idea of what I mean.

I worked with a forex trader who wanted to trade intraday; however, watching all of the price fluctuations seemed to bring out the impulsiveness of this guy’s personality. After completing a further assessment, he decided to do something bold for a person who had only traded intraday.

I recommended he trade swing time frames and only look at his charts and place orders around 5:00 p.m. New York time when the American markets had closed and the Asian markets were coming online. This trader maintained the commitment to only look at the charts at that time of day. As a result, he could compensate for his intraday impatience and develop better technical and money management skills. On a deeper note, during his free time in the day, he sought self-help for some personal problems he had and eventually went to school during the day just for self-improvement to nurture his interest in botany. 

As I mentioned, this is an extreme example that will not serve as a pattern for everyone struggling with impatience. However, if you are looking for ways to modify your trading to avoid the pitfalls of impulsive decisions, then you might consider what this trader did. 

Contracting Your Timeframes

The third piece of advice contrasts with the previous section. Rather than trading more extended time frames, consider trading shorter time frames. I know one trader who could not seem to wait for set-ups and then refused to give his trades the appropriate time to work. His method had been to hold trades for a period of fifteen minutes up to an hour.

This trader was great at developing systems, so I challenging him to create one where he would only be in the market for a few seconds to maybe five minutes. After some time, I heard from him. He seemed happy that he had manufactured a mechanically impatient strategy that would get him in and out of a market, usually in less than two minutes, with an excellent risk to reward ratio. 

Again, this type of response is not for everyone; you must consider your own personality, economic needs, and abilities. However, for some, adapting to hold for smaller time frames, exiting before the impulsiveness sets in could be an appropriate response. Furthermore, no matter your style, if you have a system with strong results with good risk management and can automate such a program, that might be beneficial. 

Be Objective

The final word of advice to combat impatient trading is something that we can all benefit from. That is to do your homework and trade as mechanically as possible with predefined entries and exits. Once I enter a trade, I have the risk parameters set, and I often step away to exercise briefly, which enables me to work out any tension while being productive in a sedentary life.

With this routine, combined with my analysis, the mechanical approach to risk management gives me the confidence to allow my plan to work.

Perhaps you have ways that you have found to be successful countermeasures of impatience. If so, please feel free to share these in the comments section, and remember, patience is a virtue!