Last week we discussed the idea that PATIENCE plays an important role in trading.
A key component of edge comes from recognising and accepting that you do NOT have to trade every price sequence.
When the bias is unclear, stand aside or trade another market.
When the pace of price flow is too fast or too slow for your liking, stand aside or trade another market.
When the price action is choppy rather than flowing smoothly, stand aside or trade another market.
And we looked at an example in which I waited on the sidelines for over an hour, before finding price movement that was screaming out to be traded. Good pace, good structure and easier to read. Something that I felt nicely in sync with.
Check out that article first, if you missed it – https://yourtradingcoach.com/trader/patience-is-a-key-component-of-your-edge-part-1/..
So I closed out that article by promising that we would discuss another session in which I did not act with good patience, but instead reacted emotionally and chased opportunity where there was none.
In fact, it happened the day immediately following our prior example.
The session started in a quite similar fashion with a strong bearish drive. My expectations were exactly the same – look for PB/CPB trade opportunity.
YTC Price Action Trader references:
The First and Second Principles – Volume 2, Page 145-148
The PB & CPB Setups – Volume 3, Pages 34-40
The market pulled higher to offer the first trade entry.
I should have got it. But I didn't.
That's fine. Let it go.
Let's see what follows…
I'm not completely annoyed with the first trade.
With hindsight it doesn't look great. It didn't look great when it was happening live, either.
But it did stall on a break of the prior swing high for quite a bit and had potential to snap lower if this stall failed.
I'm ok with this loss. Kind of!
It was marginal. But I'm not going to beat myself up over the first loss.
It was the re-entry that I'm NOT HAPPY with. There was absolutely NO reason to take that one.
So what did I do next?
Do you recall this recent article – https://yourtradingcoach.com/trading-process-and-strategy/two-attempts-then-reassess/
Then step away, clear my mind and reassess from first principles.
The pattern was broken by my "Two attempts then reassess" rule.
I have some small routines which I call AA Statements (YTC Price Action Trader Vol 4, Ch 10, P48).
I completed the Regroup and Focus routines. It only took a couple of minutes.
And then I looked at the charts again with a clear mind.
It was completely obvious what was going on here.
- Frustration at the missed entry leaving me REALLY wanting to get short. And the stall as price broke the high of D provided just enough hint that perhaps the bears were still in control and price would fall.
- And of course ultimately some "need to be right".
This was NOT the patience we talked about last week. It's the complete opposite of patience.
You might recall last week I mentioned that patience was being ok with standing aside until the market was screaming out to be traded.
Here's an important point…
The only thing screaming in this trade sequence was my ego. There was an internal urge to trade which did NOT come from the market movement. It came from within me.
This is a key difference.
Before a trade, maybe I need to consider this quick question – "Is the market telling me to take this trade, or is it coming from inside me?"
Patience was restored and I moved on to the next trade opportunity.
This time I was happy to stand aside.
I don't need to trade.
I don't care if the next opportunity takes half an hour to appear. Or an hour. Or even tomorrow.
Until THE MARKET tells me to trade… and screams out to be traded… there is no trade.
Fortunately, it didn't take till tomorrow:
So here is the full sequence:
Let's wrap up with the key takeaway from last week's article…
You don't have to trade every price sequence.
If the market offers something that is not comfortable, or that's not easy to read, stand aside and wait.
The time to trade is ONLY when you feel it's flowing nicely and you're completely in sync with the price swings.
That is when you trade. No other time.
And let's add the one from today…
Pre-trade, ask yourself this question – "Is the market telling me to take this trade, or is it coming from inside me?"
I disagree with your comments on your first two trades: you ARE that smart! 🙂 If you were right, in that scenario the market would have *jumped* in your predicted direction, giving you a multiple R profit very quickly. I’m sure you factored that in your decision as well.
I think that the approach of trading based on expectations will always present us with these scenarios, where our expectations are not met and our trades look silly in hindsight. The idea of “two attempts, then reassess” effectively limits the maximum theoretical loss from a wrong assessment to 2R.
My own risk management strategy goes one step further: “two wrong assessments, I’m done trading for the day.”
This makes me able to answer the question: “how much is my maximum theoretical loss in one day?” with “That’s 4R”. In fact, I end my day if I accumulate a loss of 4R regardless of how that happens…
I think that risk management is really as critical as anything else: it does affect the slope of our equity line very significantly!
Yeah, the trade could have given a multiple-R return, but the odds were much less than even. There may still have been an edge, but it’s marginal.
I’m ok with the first trade though. It’s the second which was purely ego and emotion. That’s the one I don’t like.
Regarding risk management and the importance of having a session stop – absolutely spot on. 100% agree. It’s vital to success in my opinion.
Another awesome article lance.
I specially liked : “Before a trade, maybe I need to consider this quick question – “Is the market telling me to take this trade, or is it coming from inside me?”
do you have fixed targets for exit or you wait for some market signals ?
Thanks. My targets are based upon the structure – usually the price action structure but sometimes the channel structure (YTC Scalper methodology).
This is a great article and discussion.
Here’s a question though, what if you’re trading a paper account and trying to prove to yourself an ability to end a months sample of sessions profitably? If I was actually trading live $ I would walk away no doubt, maybe even log off the live account and switch to the paper account for the remainder of that trading day if I hit my loss limit, (I hate just walking away, I don’t know why.)
However since I’m only on a paper account I allow myself to dig a ditch on bad days because my mindset is that if I walk away early, there goes a perfectly good trading day and I have to wait till the next day to have another go at it. However at the same time it also works against me if I’m trying to get a profitable month worth of sessions. This leaves me conflicted on what to do on those days since there’s no actual risk on the table.
If you hit the daily loss limit, then that is the end of that session. This is non-negotiable.
Take a break and clear your mind. Spend your time then catching up on admin, study and most importantly, a post-session review. Your time is better spent studying the reasons you hit the session stop limit, rather than just continuing to blindly carry on as you were.
There is great potential for damage to mindset and psych-capital if you continue to trade past the daily loss limit and just dig yourself into a deeper and deeper hole. Stop trading. And use the time effectively to study your performance.
Hello Mr. Lance
These two articles are very valuable and key
I traded with patience two days ago and the result was very good, But yesterday I caused a series of losses by chasing too much on the wrong bias
However, it was great for me to understand the real difference and the concept of patience
Thank you for publishing these articles
Patience is simple in concept. But difficult to put into practice. But like all skills it will improve in time. In the meantime, forgive yourself for any lapses in patience or discipline. And keep pushing forward.
There will be great lessons for you in reviewing these recent sessions. The winning ones. And the losing one.
Best of luck,
Yes, it is the same and I will practice with a clear mindset
I absolutely love this one! I underlined for myself that it is essential to remember that if sometimes we take bad trades but manage them well, they will be easily recovered by good ones. So there is no need to hurry, or beat myself up. Take all the time you need to regroup and back into the game!
An edge plays out over a series of trades. It’s a concept that is so simple and yet so difficult to “truly” get.