"Wait….. Wait….. Wait….. NOW!" this phrase is often heard in war movies before they strike the enemy. Patience whispers to us to wait for the right moment before striking. Patience continues its echo in nature and also in many aspects of our life too. This is the principles behind many successful people and this is one of the very important traits for investors and traders. It doesn’t matter whether you are investing for the long run or doing short term trading or even day trading, patience is the key to your success. I can’t stress enough on this. Let’s see how we could improve our investing skill and trading timing with patience as one of our virtue.
Believe me; we can learn a lot from nature and from each other. Stock market is one of the places where all sorts of people are interacting to gain a piece of profit from this huge gold mine. However from statistics we know that only a small fraction of people are making money while others are losing their pants. Why is it so? The stock market is a place where the impatient will be punished severely. You see… you can’t coerce the stock market to do what you wish it to do. The market won’t listen to you. So you are the one that have to do the listening.
How many times do you see that your stock portfolio skyrocket only after you sell for a small profits or even losses? How many times you cover your short when the market rally a bit during bear trend correction and then continues the downtrend plunge? How many times do we miss the nice market action even though we are right on our call on that particular stock just because we are not patient enough to wait for the market to run its course? I have and I believe that most if not all did go through this at some point of their investment or trading career.
Now, you asked, "Why is this happening to me?" Well, you got to know the stock market nature and behaviour. The stock market repeats the process of trending and correcting. Yes… Trending and correcting all the time. During trending, the stock market moves in the prevailing direction and it is very obvious to all people. Even the blind knows that the market is trending when repeated news broadcasting that the market goes up so much or the market crash. That’s the general trend that we know. However, the market also spends some of its time in corrective mode to the prevailing trend. During market trend correction, things may not seem to be what it should be. At times you will question why the stock market rally even during recession or bad news. Sometimes it is just mind boggling to see the market goes south when everything looks wonderful. Well, patience is needed during this corrective move. You heard me saying "Wait" three times before the action word of NOW.
Let me give you some example of this in our nature. In the world of wilderness, you often times see that the lion lies in wait for the prey. What is the beast waiting for? It is waiting for the right moment to pounce on the prey that gives the most probabilities of capturing it. The same goes for safari hunters. Every shot counts and they have to be sure before pulling the trigger. Again, that is patience speaking. Do you go for fishing? I often time compare fishing with the stock market action. It is like a mirror that you can see clearly of the market behaviour. Well, I am not a professional angler but I do know some fundamentals of it. The technique used also depends on the fishing location just like the many different choice of investment vehicles that requires different specialized techniques. However the fundamental principle remains the same. Let’s take pond-fishing as an example. When you see some movement on your rod, you just don’t strike. It might be some small fishes nibbling your bait. It requires patience to do nothing at this point of time. When you see big movement only then you know that it is the call to strike. As Warren Buffett said, "The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’" Here is another saying of Warren Buffet, "The Stock Market is designed to transfer money from the Active to the Patient."
Here are the 3 things that you can do right now to improve patience in your investing and trading business.
- Every time you feel the urge to sell off your investment holding because the stock prices have risen, take a deep breath and ask yourself "Has the business fundamentals changed? Has the initial reasons for the investment changed? Is there a better future for this company? Does the microeconomics and macroeconomics outlook changed? What is my initial capital commitment period?" If above answers are the same when you made the investment initially then be patient and stay put.
- Every time you feel like calling your broker to place a trading order, pause for a moment and ask yourself "Is there a trade setup? Any trading signal triggered? Has the trend corrective pattern completed? Has the support or resistance line breached? Has the primary and intermediate trend reversed? Any stop loss triggered? What is my holding period?" Above questions will trigger us to think logically on our trading decisions.
- Finally ask yourself this very important question, "Do I have any confirmation for the investment idea or trading signal?" Confirmation plays a very important part to ensure that we are on the right track. This is the safety line to ensure that we are making decision based on logical facts and not assumptions. As the saying goes, "Better be right than be sorry."
Do the above 3 things often and you will see that patience is building in you. Most of the time inactivity in investment and trading is beneficial and even profitable decision. Make it a habit to stay put on your decision when you know that you are right on track. Let this sink into your mindset.
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I’ve come across a lot of stuff about investing in online books and blog posts and most of it seems conflicting. It’s so difficult to find reliable information that’s based on actual truth and not just some dude’s opinion.