Time: The most overlooked component of the trade. However, it is time that is probably the most important factor in determining whether a trade will result in a profit or a loss. A trade you close after a loss after two hours may have made a big profit if you have held it for two weeks. As human beings, WE are certainly the weakest link when it comes to trading, since most of us have very little patience, self-discipline and self-control, especially when it comes to keeping our trades.
Almost all of the best trades that I have made personally or that I have seen from our members have lasted much longer than either of us originally expected or maybe wanted. However, the fact is that what we want and expect is usually not what the market has in store.
The foundation of trading success is to keep trades longer than you want in most cases. Let them play without your interference and just accept that the market and price take TIME to do their thing. Take a look at a table afterwards and you will see for yourself. Go ahead and actually look, count the days, weeks, or months it took some of the most obvious trading signals to play.
All of the logic of holding trades longer than you think should come from my belief that traders should use the daily chart timeframes and larger stop losses to avoid being prematurely stopped by short-term market noise. Today's lesson shows you why you need to hold your trades longer to achieve long-term trading success.
How you can massively improve your trading results this year
The new year is just around the corner and I am sure that as one of your New Year's trading decisions you want to improve your trading results. While you may think this is easier said than done, here is the most important thing you can do to improve your trade this year: keep your trades longer and get involved / look less.
In this lesson, we'll look at some daily chart trading setups to show how thinking about time, not just price, can significantly improve your trading results. You need to show the time just as importantly as you show the price of the trade you are in. Just because your trade is currently negative (but has not reached your stop loss) does not mean that it ends up being a loss due to the TIME. Time is your friend in the market, but most traders make it an enemy.
If you trade the timeframe of the daily chart, I would say that the average time period in which you should expect a trade is around 1-3 weeks. I am willing to bet that most of you reading this rarely hold your trades for so long. Well, it's not meant to be offensive, it's supposed to be an eye opener and a helpful piece of wisdom. Let's look at some examples in the diagrams.
In the daily gold table below we see some very nice pin bar signals that have formed at an important support level. You will find that the price of the first pin bar saw went up fairly quickly, but even that one took about 6 full days to play if you wanted to make a significant profit. A few weeks later, playing the next pin bar was taking longer. Note that it took about 17 days for you to really make a nice profit. Could you have waited so long for the 50% tweak entry and then the price to go up? It all boils down to having a plan and sticking to it.
Now let’s look at another diagram. This time, of course, it's WTI – crude oil on the daily chart timeframe. This trading environment developed within a very strong downward trend. We have two bearish pin headers, which are small but have the weight of a big trend behind them so that the signals could be picked up well. However, you will find that after the short entry, the market decided to consolidate and move sideways for 7 days before finally falling back down and bringing you a profit. It's sad to say, but most traders would have been completely confused in these 7 days. Turning should have been a big winner, probably in multiple lost trades.
Use wider stop losses and stop getting involved in your trades
They have a tool at their side that helps you give trades the time they need to become big winners. This tool is a stop loss placement, especially considering the use of larger stop loss values than you might be used to. Giving another 50 pips to a trade can greatly improve the chances of that trade switching from a loser to a winner. The reason for this is that many trades are (or should be) closed with support or resistance, possibly after a retreat within the trend. However, we cannot predict exactly how far a market will go. So if you give this trade more “padding” or space near this retreat, you can often avoid a stopover.
Of course, increasing the stop-loss distance increases the time it takes to hold this trade, as you place the stop outside (or at least that is the goal) outside of the daily and weekly average price movement ranges. For example, the EURUSD hovers an average of 150 to 200 pips a week. So if your goal is 400 or 600 pips wide, you have to WAIT and there is no way around it.
However, keep in mind that broader stops will keep us in the game longer and improve our chances of success across a range of businesses. And that's the goal, isn't it?
Here's an example: The daily crude oil table below shows us two very nice consecutive daily bullish pin bars that have formed. The price then crept sideways for a few days before barely hurting the low of those pens and then hurling higher. What a cruel fact is that most traders who got in long before these pins were stopped shortly before the price hike due to a loss at the low of the bars. The solution? Increase your stopping distance and this loss becomes a gain. Don't be greedy by choosing the closer stop so you can increase your position. Remember bulls and bears make money, but pigs are slaughtered by the market. Are you a bull, bear or pig?
Here's another prime example of how wider stops and the patience to give a trade time to play can bring a monster win …
We are looking at the daily NZDUSD chart this time and see a very clear and obvious bearish pin-bar sell signal that has formed near a resistance level. What is most important here is the central level of resistance right above your head. You have to place your stop loss directly above this level, NOT the pin bar. It is literally the difference between loss and profit. Note that if you entered the trade with a 50% optimized entry price, you snuck up a bit higher after that and only hurt the pin peak (but stayed below the resistance level) before you sold. Note that you had to wait 20 days to make a nice profit, but if you just set and forget this trade, you literally do NOTHING while making money! Don't make it harder than it has to be!
Patience and discipline – do you have them?
Of course, the “glue” that enables all this “waiting” and “doing nothing”, patience and discipline, are two things that many people have to struggle with in our time of “I want it now” mentality. Only if a trader decides to stick to their plan and stay on course given the temptation can a well-executed trade bring monster returns.
In my experience, even the best and most obvious trades that immediately go in your direction take about a week, sometimes more, to really make big profits. An example of this is this setup from the AUDUSD daily chart earlier this year. The overall trend was down and the price had risen again to an important resistance area, forming a very obvious bearish pin bar sell signal. The price dropped the next day, but many traders probably chose a small profit after just one day instead of holding it for 6 days and waiting for the price to reach the next support area and make a much bigger profit …
What I want you to take out of this lesson is that you have to start looking at TIME as a critical component to trading success, not just an afterthought. Every time you make a trade, you need to be prepared to give it the space and time it takes to potentially become a winner. Otherwise, you will suffer a lot of unnecessary losses.
Do not be in a hurry to make money because this is just greed and as you know, greedy people lose in the market. You don't have to be too committed to your trades and trades. The most important way to do this is to control your risk and not to use your trading account too much, but also not to be in a hurry and to trade too much.
The traders who make money and end up in the infamous “10% of the traders who are successful” are the brave enough to hold trades and the patience to not be shaken by any small market swings. You don't want to be reactionary like a wild animal, you want to be clever and patient, like an intelligent person who uses his frontal lobe to control his impulses.
If you want to learn more about how I deal with simple price action patterns like in today's lesson and how I deal with my emotions and my money in the market, check out my freshly updated course on price action deals for more in-depth education and training.
Please leave a comment below with your thoughts on this lesson …
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