Anatomy of a Trade: Don't Just Do Something, Sit There – TheStreet.com

A common mistake many traders make is thinking that they must be in constant motion, buying and selling every move in the market. We see people on the floor of exchanges yelling out their orders, or hyperactive traders flipping for pennies, and it gives us the impression that we should be in perpetual motion in order to gain an edge.

There are times when traders need to move rapidly and make buy and sell decisions quickly, but effective trading also requires that there be periods of time when we sit patiently and do little. One of the hallmarks of good traders is that they can quickly make big and aggressive trades and then shift back to watchfully waiting as opportunities develop again.

Most of the time, the best traders are doing very little actual trading. When they do act, they are decisive and aggressive and then they go back to sitting patiently while they do research and look for the next candidate for a trade.

Some of the worst trades that we make are those that occur when we are bored and itching for action. Personally, I find that I have an inclination to hope for market pullbacks to shake things up, and that makes me more inclined to take index shorts when I trade out of boredom. I have to stay conscious of this bias in order to avoid it.

Here is an example of how I am using a combination of quick, decisive action and patience to approach a position in a stock that I like in a longer-term timeframe of a few months or so.

Trade Desk (TTD) provides tools for buying and managing advertising. It posted very strong earnings and then announced and priced a secondary. I want to build a good-size position in this stock, but I want to make sure I take advantage of the volatility that is likely to create some attractive entry points along the way.

When the company announced its earnings, I moved quickly to take an initial position, but I had to be patient to see how much momentum it had. An announcement of an offering was greeted with a positive response, so I knew I would want to add some once it was priced. I stayed patient waiting for the pricing and then added at that point. I'm patiently waiting again for another entry point to develop. The stock is doing what I want and I'm tempted to rush my buying because I don't see much else I like right now. When the time is right, I'm going to add a sizable chunk, but I don't know when that might be. I'm willing to be patient, and that changes the feel of the trade.

To produce superior trading results, cultivate patience combined with quick, decisive action. Find a stock and make a plan on how you will do just that.

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Anatomy of a Trade: Don't Just Do Something, Sit There - TheStreet.com