Patience is a Form of Market Timing

I recently wrote a posting on my blog entitled Timing is Everything and I still hold firm to that belief; but a segment of market-timing consists of patience, which is an essential element of trading. Without it, one is likely to over trade and destroy their portfolio in the process. Today, I fell into that very pit – not portfolio capitulation, but the former – impatience with my trade-entry.

Let’s break it down…

The market opens up weak, and shows signs of wanting to go down even further; I have a list of about 10 stocks that I am paying particular attention to, one of them being (ETP). I saw that the market was weakening by the second, and looked at ETP as the perfect candidate for me to go short in. As I was inputting my trade parameters, I noticed that the candle setup that had caught my attention in the early going (a nice doji) quickly deteriorated into a candle that was anything but ideal. But my passion to jump in and short this market was too great and overrode my rationale for not getting into the trade to begin with, or at least into ETP, as the unique trade setup was no longer there (another stock I was watching, PANL would have been the ideal setup).

So I get in and everything looks blissful for about 15 minutes, but soon thereafter, the stock forms a doji candle at the lows of the day, reverses course and within 45 minutes of originally getting into the trade I am out and done for the day. Had I been more patient (i.e. market timing), bid my time, and waited longer for a trade setup that provided the best risk-to-reward opportunity, I likely would be writing to you about the profitability of the trade.

As you will see in the chart below, I have found a candle pattern, that when in the heat of the moment is hard to resist, but in the aftermath, is a painfully obvious candle formation that should be avoided, and that is where a stock opens significantly strong (or weak), and the following candle that is formed finds its entire real-body inside of the upper shadow (or lower shadow) of the previous candle. Typically, when using 30-minute candles, this can be a signal that the move is likely reaching its peak, or that a trade’s risk-to-reward scenario is stacked strongly against  you. Instead, the ideal trade setup, in this particular situation, is a setup that has had a chance to cool off and pull back some (not a ton) before resuming the upward trend it had been on prior.

Here’s the chart on  ETP

By the way, congrats to everyone who got into the (JRCC) trade and managed to profit handsomely to the tune of 12.5% – we were stopped out of this trade today, but it comes as no surprise, as we tightened it up pretty good last night in order to preserve as much of the profits as possible.