“Wait by the river long enough and the body of your enemy will float by you.” Sun Tzu
Waiting is the hardest part of trading. And also the least talked about. If you can improve your waiting you will improve your trading. I have a short text above my trading monitor and on my phone’s wallpaper:
“Waiting skill = Trading skill“
It’s a useful reminder, as I see it every time I intend to buy or sell a stock. It makes me reconsider: what are my reasons for buying or selling? Is this really a rare urgent opportunity? Or is there a good case to be made for waiting a bit longer?
There are different kinds of waiting, which all play a role when it comes to trading well. There is the waiting once you have entered the market, but first there is the waiting when you are still in cash. That can be the most difficult type of waiting.
In fact, “not waiting” is very easy. Look at new traders when they get their first account funded. How long does it take until they dive into some trades? The reason for this is in the dopamine boost it gives us. It’s like getting a new motorcycle, can’t wait to try it. It’s really useful to know how our “brain chemistry” works. Taking a chance in a casino or taking a chance on some hot stock via a trading app on our phone is not really different for our brain. Become aware of that dopamine boost and make sure that is never the real reason why you want to put on a new trade: here is an article.
Compared to the feel good moment of hitting the buy button, waiting and waiting for the optimal setup is very boring. And that’s not the only thing that keeps us from trading well. As we wait we may see lots of stocks make big moves, perhaps stocks we considered buying (but didn’t), and that can fill us with regret. Regret of seeing so much missed chances (how could I not buy TSLA at $30 in the covid crash?) can paralyse you and make you decide that trading is not for you.
And that’s not where the challenges stop. Eventually you will have gotten in some positions and now another kind of waiting starts: waiting for results. Your newly bought stock will soon move into paper profit, or into a paper loss. So there are two types of waiting when you own a position: there is the waiting in profit, and there is waiting in loss. Your dopamine boost of buying the stock has come and gone and now you are into the cold hard world of handling your trade. Many traders can wait without end on a losing position, but they can’t wait very long in profit. That profit gets taken as soon as a mouse coughs… Why is that?
This is also because of brain chemistry. Taking a profit gives us a dopamine boost too. The gain is realised and we feel happy about it. Waiting to take the profit causes a certain stress, stress that this profit will get away before we take it. It’s an uneven battle between chosing pleasure (dopamine) or stress. Watch that battle inside you.
This not the case with a losing position. Taking a loss feels sad and depressing, especially when you take a string of losses. We failed and by taking the loss that failure is realised. We tend to delay that feeling by waiting on this stock, hoping it will turn around and get closed at a profit some day. So this is an uneven battle between sadness and hope. It’s easier to chose hope. Watch that inner battle too.
Most people share those same biases, and that’s why markets and stocks move in the ways they do. If we become more aware of those biases and learn to watch, if not do the opposite, then we will gain an advantage. Take small losses quickly, let winners run. You will read it in nearly every book about trading, but it remains difficult. And it’s more difficult if your dopamine levels are low for some reason and you need some boost. So, becoming a master of your dopamine levels can also improve your trading results. Here you can learn more about it.
“It was never my thinking that made the big money for me, it always was sitting.” Jesse Livermore