Patience is a Virtue

One aspect of trading that is so often overlooked, but probably lies at the heart of most poor decisions ... is.... you guessed it..... patience. Lets be honest, the sole reason we trade and got involved in trading is to make money, a lot of it. And a lot of it can be made, don't get me wrong. The richest individuals in the world are investors and they got to be rich by harnessing the power of time. Whether they are conscious of it or not, the power of time and using money effectively with the power of mathematics helped them to amass a great deal of wealth. In the world of trading, having patience can drastically improve the performance of your account. There are countless examples of traders who lost almost all of their capital simply because they didn't master the art of waiting and risked too much or traded too often in hopes of out thinking the market. The ones who do make money, are the ones who understand a market will run, then walk. I want you to look at the graphic I prepared below. Click on it so it enlarges and absorb what's happening.

Now I initially called it "The Flight Path of the Trend Follower" but quickly corrected myself by adding the word "Good" to the title. I'm illustrating how closely a trader's progress looks just like market movement. Your progress is not going to be a straight line. Actually, your progress will probably seem stagnant more times than not. 60-80% of the time, your account will look lifeless, losing what you win over and over. That's okay. If you have patience and understand that, instead of out thinking the market, you follow it, understanding when she starts running again, you'll be there. Along the way to riches, you will experience good sized "setbacks" but they're not setbacks. It's just trapped energy spooling up to be released down the road.

Being a good trend follower means understanding markets take a while to work themselves out and make substantial moves, one way or the other. Trend followers trade as usual, expecting only what the market is willing to give. Buyers and sellers often "fight" so much that sideways choppy action can last what seems forever until one side wins and the people who stuck around long enough reap the reward. The good trend follower understands this thoroughly and it's what keeps him/her from betting too much or taking odd trades that go outside their system. They make trades listening to what the market and their system ARE telling them, rather than listening to what they feel the market SHOULD do. Big difference. As an ex Elliottician I still struggle with letting go of all the patterns I learned, hopelessly trying to forecast the future. Why? Well after years of study and lack luster results at best, I quickly realized that in real time, markets cannot fit in a box and that market will move and swing the way it wants. Also, if you ever become married to one or two possible outcomes, you tend to hold on to those beliefs even when the market is telling you it's not going that way. Trend following is all about finding out when the trend has changed, and simply taking action, moving your stops, and letting the market move while you get out of the way. She says to lose $800, you give $800... She gives you $500, you take back $500.

When using a good trend following approach, drawdowns will occur whether you are trading a weekly chart, or a minute chart. They cannot be avoided. Sure you can do your best and avoid certain phases, but for the most part, it's easiest to follow along and be there when price makes the big moves. Embrace the draw downs. They aren't so bad. They are simply a precursor for the main event. If you can master the art of patience while trading, after every drawdown period you will continue to add additional profit, and that's a beautiful thing. Just make sure you trade small and account for those drawdowns, otherwise you'll not only be late to the party, you won't make it at all.