The following was a social media post that I sent out just before my trading session on the 6th of February.
It was my first session following a two week holiday… and I was more than keen to get back into the markets.
Click on the image or this link here if you wish to read the article – Patience is a Key Component of your Edge.
It was a simple reminder to myself that:
- The real source of my edge is not in my strategy, but in ME.
- Patience plays an important part in realising that edge.
- And most importantly – I don't have to trade every price sequence.
In other words… knowing that I'm susceptible to emotional, impulsive trading when I first come back from a break, I reminded myself to slow down. And wait till I was truly in sync with the market.
As I write this it's now the 21st of February. It's the first trading day following a long weekend. I'm keen to trade. I'll be giving myself the same reminder pre-session.
And again next week. I'll be admitted to hospital next Tuesday for some very minor day surgery (nothing to worry about). But I'll likely need a day or two off trading as I recover. Again, I'll be giving myself this same reminder.
Slow down. And wait till I'm truly in sync with the market.
HOWEVER…
This is not all I do.
There is a simple "hack" which I've used for a few years now which provides exceptional help in overcoming my impulsive desire to trade.
I've thought about sharing it a few times, but to be honest it seems so obvious that I thought it would be a stupid topic for an article. My stats clearly show that readers prefer charts… and this is not a chart.
But it's so important. And such a great help. And given that I'll be applying the hack again today… I figure you should get it too.
This will be of most relevance to short timeframe day traders; those of us who "screen watch". But the general concept can be adapted for use by longer timeframe traders as well. We'll talk about that later.
Interestingly, there has been some exceptional discussion on this topic in other blogs in recent weeks. I'm not going to duplicate their advice. It's great work and you should go directly to their blogs to read their suggestions and solutions.
http://www.smbtraining.com/blog/a-solution-to-improve-your-patience-as-a-trader
http://tradingcomposure.com/traders-impulsivity/
Visualisation, meditation, mindfulness, and all the other methods discussed… they're very important and a key part of your solution. I particularly LOVE the technique provided by Dr Steenbarger, in the SMB Training link. I'll make you click to get that one! (Ha ha).
But I was surprised to see that my little impulsivity hack was not presented.
So here we go.
What is the solution? How do I reduce the likelihood of emotional, impulsive reaction to price movement?
I create a physical barrier between my desire to trade and my ability to execute.
In other words… I step back about a metre and conduct all analysis out of reach of the keyboard and mouse.
I know… right!
LAME!
No, seriously. Work with me here.
The key problem is NOT our impulsive desire to trade. It's the fact that we react to that desire by clicking the mouse and entering.
The solution is to put a barrier in place. Something that forces a break between your desire to trade and your ability to enter.
It does not need to be a massive barrier. This solution is about as small a barrier as we can get. It's simply space. And only one metre. But it's enough.
- Step back from the keyboard and mouse.
- Conduct your analysis.
- When you feel that desire to trade, don't. You can't reach it. And you're not allowed to step forward. So just pause and reassess.
- And ONLY step forward once that pause and reassessment screams out, "Yes! This is the opportunity I've been waiting for. This is an A+ setup. This does provide edge."
Discipline and patience are not just a function of willpower. You can create physical barriers to limit impulsive trading.
A physical barrier between your desire to trade and your ability to execute.
Just a small barrier. But just enough to have you pause and reassess.
Longer timeframe traders… clearly stepping back one metre is not likely to help you. After all, you've got a lot of time to make decisions anyway. But the same concept applies – adjust your environment to provide a barrier between decision and execution. One possible solution – conduct your analysis and trade decisions on a separate platform that does not allow execution. Once trade decisions are made and written down, open up your broker's execution platform and reassess the quality of your decisions. Only enter if they're still A+ ideas.
I'm sure you can find other solutions that better suit your particular trading setup.
The key concept applies though, regardless of who we are and how we trade – create a physical barrier between your desire to trade and your ability to execute.
It's not a full solution. See the links posted earlier for some other key parts in managing impulsivity. But it's a simple "hack" that I've found to be exceptionally effective.
I'll be using it tonight, as I trade the first session back after a long-weekend.
I hope you find the idea effective as well.
Happy trading,
Lance Beggs