Patience is core skill for any trader, and for a momentum/scalp trader like myself, adding some more patience to my game has been a hard challenge to tackle. As I mentioned in my post last week, one of the major adjustments I have made to my trading is that I am being far more selective with my  setups, and I am holding positions for longer periods of time. Instead of making dozens of trades in one stock throughout the day, I am searching for one or two good risk/reward plays across a basket of stocks and ETFs, and making just one or two trades in each.

As I continue to follow the market and adjust my trading to new market conditions, I am finding that being patient is just as much about waiting for your entry point as it about waiting for your exit point. “No one ever went broke taking profits” is one of the more overused clichés in trading and investing. It might be true, but I can assure you that having a solid plan for each trade, one that matches a high probability setup with a good risk/reward ratio is far more important than simply always booking small profits. As you are trading and holding a position, you will often have to resist the urge to take your profits out of the market if it is not in accordance with your plan and your stock has not yet reached your planned target. If you are always booking small profits, you may find it difficult to make money in the long run, as your many small wins may simply not be enough to cover your losses.

A solid example of a setup many traders on our desk were able to capitalize on yesterday was AIG above 30.50. On Monday, after breaking down below 32, AIG made a feeble attempt to bounce off 30, only to fail several times in the 30.40 area before it went down another two points to 28. On Tuesday morning there were a handful of positive news stories out on AIG, and the stock was gapping up. After selling off right on the open, AIG bounced off of 29, made a powerful upmove towards 30.50, failed there the first time, but then broke above. I was long above 30.50. My target was 31.50. I held my core position to just below that price before I sold. Yes the stock went up another 30 cents, but it’s much more important to me that I was patient and disciplined, and stuck to the plan to hold AIG long for a point. The easy thing to do would be to dump the stock at 30.70 or 31 when it slowed down, take the 20 cents or half a point of profit, pat myself on the back, and go grab an early lunch. No one ever went broke taking profits right?

Well, based on the chart setup, the recent history of the stock, and based on the confirmation we received from reading the tape when the stock broke above 30.50, I decided that I was going to hold a core position to my target of 31.50, and that’s exactly what I and some of the other traders on the desk were able to do.

Another example was Tuesday’s setup in Amazon, which just happens to be one of the strongest stocks in the market. One of the better traders on our desk was able to catch about two points AMZN as it was making new all-time highs. This trader had a well prepared plan, understood the potential for the stock to move, had the patience to hold the stock for several points, and the discipline not to sell through some of the downticks and take his profits too early. Nice job!

When you have your fingers on the keys, and the stock is ticking up and down, it can be easy to overtrade and not hold positions long enough. Having patience, and being able to hold a position for a longer move stems from having a solid detailed plan, and having the discipline and determination to stick to that plan.

When you get into a good play, and the stock starts moving in your favor, add a little dose of patient thinking to your plan when the setup calls for it, and you may find yourself taking larger bites out of the market than you previously thought possible.

Best of luck with your trading, and don’t forget to follow us on Twitter!