What’s the one skill you need to be successful day trading? You need to be able to control your emotions. This is the most important aspect because learning the technicals is the easy part. The hard part is having the ability to think clearly and make split second decisions without letting your emotions get in the way.
Trading is a lot like fishing; you’ve got thousands of fish in the sea, but that doesn’t mean you should catch every single one. In fact, you only want to catch the select few that meet your stringent criteria.
To do this, you narrow down what you want, and you wait. Just like fishing, the one skill you need to be successful day trading is patience.
Table of Contents
A Sad Yet Familiar Scenario
You’ve done your homework and found a promising stock. You narrowed in on your entry point for the set up you want to trade – the bull flag pull back out of the gate.
The opening bell rings, and you are eagerly anticipating the price to reach your entry point. Sure enough, you see the price rising on the one-minute chart and all of a sudden; it surges up. In a panic, you go all in, placing an order well above your planned entry point. Unfortunately, just as your order gets filled, the price comes tumbling down and continues to tumble, well below your entry point.
At this point, your upset at yourself, throwing around expletives that would make your mother cringe. How could you be so stupid? You just missed the real entry point. If you need help developing a trading plan or a strategy to find your next fish, reach out to us. We even have the option of a 15-minute virtual coffee chat session if you’d like.
Why didn’t you follow your trading plan? You knew it wasn’t the right time to buy, and yet you went ahead, violated your entry criteria and bought anyways. Sound familiar? Feel familiar? Be truthful.
If it does, you probably didn’t have a trading plan. Every trading plan is personal and contains the strategies that tell you when and where to enter a trade.
In the example above, the trader not only lost money, but she violated her rules and missed the real entry point by being. And all for one reason: Impatience.
Waiting for the Right Time to Enter a Trade
It goes without saying, impatience throws off your timing. Losing money because you bought right before the price dropped and then sold before the price rose because you panicked is a terrible feeling.
The unfortunate spinoff is that you miss the valid signals that often happen just after you exit a losing trade.
Sadly, when this situation occurs, traders often think it’s their timing that’s off. While that may be true, it’s best if they looked in the mirror. What’s most likely true is their lack of patience.
One thing I do know (yes, from experience), impatient trades lead to unnecessary losses and stress levels through the roof and wasted emotional energy.
If you find yourself in a situation where your price direction expectations are often correct, but you’re not in the trade when price moves in said direction usually, your patience is likely off.
Determining When to Take Profits
I suggest that one you enter a trade, enter a good-till-cancelled bracketed order with your target and trailing stop.
Both of these criteria define where you will take profit and where you will take a loss. Check out our blog for more detailed information on how to set your stops.
Allow Time for Your Position to Play Out
You’re now in the trade, and your job is to watch the trade develop. Based on your analysis, this stock still has more room to run before it hits your profit target.
But what if the stock pulls back and falls below your original entry point but doesn’t quite hit your trailing stop? Should you sell? No, and here’s why.
Just after you exit the trade, the price moves up again and reaches your target. You should not have let the fear of loss get in the way of your well-thought-out plan.
Rest assured, fear is a common trait in traders, but you can overcome it. Be patient, trust your plan and do not waiver from your trailing stop methodology. Let your trade proceed as expected.
Waiting for the Right Time to Exit a Trade
Have you ever found yourself in a situation where you’re patiently waiting, but the stock price barely moves? You have been patient and followed your rules; now what you supposed to do?
I suggest, being there before, it’s best to take another look at your analysis of the trade. What made you decide to enter the trade? Did the set up meet all of your entry criteria?
For example, let’s say your criteria for entry is a cross of the 9EMA above the 20 EMA, RSI under 30, candles above VWAP with volume confirmation.
Upon review, you notice that yes, the trade met all of your entry criteria. At this point, it makes sense to continue to hold your position.
In a lot of cases, the price of your stock will approach your target; it’s your job to be patient. Your time to close out your position will come. You have two options.
Either wait until the price hits your target, or you can tighten up your stop to ensure that you make a profit on the trade. Trust me when I tell you, no one has ever gone broke taking profits.
Losses Are Normal
I think it’s important to point out that losses are a part of trading; some traders are only profitable in 70% of their trades.
Showing patience when entering a trade and having patience while a trade develops are integral parts to successful trading and investing.
All things considered, it is your discipline combined with good entry points, trailing stops and exits that lead to consistent profits.
Please, stay patient and let your process go to work. By consistently entering and exiting trades according to your predefined criteria is one of the best ways to improve your success as a trader.
Likewise, if the temptation to exit a trade too soon creeps in, step away and review the reasons why you initially set your stops and targets.
For what it’s worth, sit on your hands. And if your discipline needs to change, then so be it.
Your Single Most Useful Skill as a Day Trader
Patience is the single most useful skill a day trader can have in their arsenal. It’s the key to staying consistent and executing trades based on your predetermined plan.
The minute we let our emotions rule our trading is the minute we head down the path to financial ruin. So as to prevent this from happening, have a predetermined set of rules that tell you when to exit and enter trades.
My parting advice is this: Whatever you do, do not let your emotions take control; remind yourself that it is this discipline that makes a great trader.
And if the stock doesn’t want to bite, or doesn’t meet your criteria, then don’t worry about it. Be patient. There will be another fish, or opportunity, right around the corner.