Patience is definitely a virtue in the world of investing. However, it’s quite difficult to be patient and stay patient when the market becomes unpredictable.
Wait for the Entry Point
Imagine you have done your research and have identified the entry point for a promising stock. You are now waiting in anticipation for the price to reach your entry point. Rather than pulling back, the price surges upward.
Then you become panicky, so you enter an order that’s above your target entry point in a rush so that you won’t miss the trade. By doing so, you give up some of your potential profit, but more importantly you actually break the rules that caused you enter the trade in the first place.
If you always let your emotions get the better of you and rule the day, you know that it can usually result to disappointing returns. As a matter of fact, impatient investors who violate their discipline may be following a path to ruin.
Following a predetermined set of rules keeps the emotional side of trading and investing at bay.
Fishing
You can say that investing is similar to fishing. There are many fish in the sea and you’re not really required to catch every fish that swims by just to be successful. In fact, it’s only necessary to catch those few that bite and fill up your net or that essentially meet your trading criteria.
It is important to remember that there are always many trading opportunities in the market, even in a tight market, so the difficulty is not so much in finding trading opportunities but making sure that the opportunities fit your trading rules.
It is vital that you concern yourself with getting good entry points and making sure you have defined exit points along with stop losses without having to get on in every trade. If the stock doesn’t want to bite, or it fails to meet your criteria, then do not concern yourself about it.
You really have to be patient. There will always be another fish or opportunity.
If you find yourself already losing control and entered a stock before it’s time, it is usually best to exit the trade and wait for it to develop based on your predefined rules and not on your emotions. Take the costs associated with the trade as a lesson – learn from it and move on.
Waiting for the right entry point is an essential characteristic of every successful trader. If you find yourself tempted to enter an order before its time, step away and go over the reasons that you selected the entry point once more.
Know When to Sell a Position
There will be times when you follow your discipline faithfully, but in spite of your patience, the price of your stock barely moves. You have been patient and followed the rules. So now what do you do?
For the most part, it is best to just go back and re-examine your analysis of the trade. Take a fresh look and try to isolate what has changed. If something is different, does your new analysis change the original season for entering the trade?
If the rationale for the trade has changed, does your analysis call for you to avoid this stock at this price? if you should not be in the stock, sell it immediately.
