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Patience Is Part of the Cycle


Respect your stops, raise cash when stops are hit and sit idle waiting until the underlying chart action shapes up.


As a trader there are times where less is more and the art of patience becomes the ultimate strategy. It is counterintuitive for a trader to sit idle as it goes against the very nature of what a trader is and does, always on the prowl, always in motion, but during times of uncertainty it is that very patience which keeps a trader in the game awaiting the next favorable opportunity.

I have struggled with this over the years and have spent considerable time analyzing why I am not alone facing this challenge. It seems that most traders have a drive to be in control, always attempting to influence the outcome of each and every situation. While it is this same desire to remain in control that allows many traders to achieve ultimate success as they don't cling onto false hope, allowing trades to get away from them, it is this same trait which keeps a trader trading when in reality they should be doing nothing.

It doesn't look or feel right, raising substantial cash and taking your hands off the wheel, sitting back during a time such as we have now, but this is exactly the strategy which will allow you to weather the storm and be prepared to participate when the environment improves.

If position sizing is appropriate, while there will be nicks, the stops taken and the losses realized should not completely demolish a trader's portfolio rather a normal draw will take place. Once the cash is raised, the trader should not recommit this capital until they are certain the environment has improved and the risk reward is much more favorable.

Unfortunately, sitting idle can be a strategy that is necessary for weeks or even months. While there may be intermittent periods of opportunity, it may be a very long time before it is prudent to commit anything meaningful back into the marketplace.

The question then becomes how does one know when the time is right? Well, first and foremost, the underlying charts will start to show signs of improvement and start offering a trader the patterns he or she favors. Once this takes place, a trader may wade into the opportunity with a very small amount "testing" the water and analyzing closely the movement and trading pattern of the stock. If the market has truly improved not only will these patterns start to act as a trader desires, but more patterns will develop within the underlying charts offering more and more opportunities. Themes will become apparent and specific groups of stocks will start trading better than others. It is at this point when one knows that the environment is improving and stocks can be added. As the environment continues to improve, more and more opportunities present themselves and very soon a trader finds himself with an abundance of opportunities and past challenges a distant memory. This is typically the time when a trader has to start become a bit more conservative and start becoming a bit more selective as the entire process will be repeated.

As a trader it is inevitable that we will go through challenging times. Regardless of what anyone says it is also these times which will lead to the next great opportunities, but we must successfully navigate the rough spots in order to enjoy and participate when the environment improves. There are times when less is more and this is one of those times.

Respect your stops, raise cash when stops are hit and sit idle waiting until the underlying chart action shapes up and we can start to nibble again. Patience is not easy but it will ultimately be what keeps you in the game for the long term.
No positions in stocks mentioned.

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