6 Steps to Improving Your Trading Patience And Discipline

I'm Merritt Black, head of futures for S and P Capital, a proprietary trading desk in New York City. Do you ever struggle with patience in your trading? As we build a futures desk out, we talk to a lot of traders. Most people we come across struggle with patience in one form or another. In this video, you'll see the recording from a talk I recently did for our developing traders on the concept of patience. So sit back and learn how you can take six steps toward improving patience in your trading.

Real laid back here. Just wanted to talk to you about something that I know I struggled when I again, January 2015, when I started here, I probably traded too many names, I probably traded too frequently. And there's something that's okay about that in terms of just getting your feet wet, getting in there, getting dirty, like experiencing some stuff on the demo. But you'll want pretty quickly to progress from that and prevent building bad habits, essentially. Right? You'll want to, as you do, start to get honed in on the niche that you want to carve out. Let's say you really like this week, you like opening drive plays, you really like second day plays, you know, from, from last week or whatever. As you begin to hone out that niche, selectivity becomes important, right? Patience becomes important. So I want to talk about patience today. I've got some notes and some things I wanted to just talk to you about. But I mean all these old adages like you want to be a sniper, right? You want to sit back and wait for your opportunities, you want to only take A plus setups, you know, all these things that we might tell ourselves that we want to do. I don't think that for 99.9% of traders, and I'm sure you guys are already ahead of this because you're here in this room.

It's not really about just like let me psych myself up in pre market and like muster up this discipline or self control that I'm just going to come in today and not do these things that I'm trying to avoid doing. Maybe some of you had, I mean, have any of you ever had experience with over trading or anything like that before? Yeah. Okay, so you're human. Great. So the thing I'd like to ask is what is patience? He wants to give me a definition of patience. What the heck is it?

It's tough, right? Maybe a little tough. What is it? It's knowing when to act and when to sit in your hands. Okay. When to act or when not to act. Okay. Anyone else want to take A stab.

All right, so I looked it up for us.

What is patience? The capacity, okay, the capacity to accept or tolerate, delay, trouble or suffering without getting angry or upset. That's like Merriam Webster, like, right off Google, right there. The capacity to accept or tolerate, delay, trouble or suffering without getting angry or upset. That I honestly did not expect to see the words like suffering and upset and what not in that definition. I thought that was very, very interesting. Because I think a big part of successful trading is finding a mindset and whatnot where we can circumvent some of the suffering that. I mean, a lot about trading is suffering. It really is. And maybe you guys are experiencing that now. But not only do we need to focus on doing nothing, true patience requires more of us. It asks us to do nothing and perhaps suffer in some manner, but to do so without getting angry or upset. So what is being upset? That's a state of being unhappy, disappointed, or worried. When I think about getting upset as a trader, when you're trying to be patient, there's four little letters that come to mind. That might be something like fomo, right? You experience fomo, which, if you give in to that, at the end of the day, your review process, you talk about how you didn't have patience, right? So we can't worry either. We can't worry about this fomo. So are we supposed to be like Buddhist monks? Like, what the heck are we supposed to do? I think far from it. So this brings us to a lot of the readings that you might find in terms of trading, psychologists stuff, Dr. S might have said. All these people out there who say that we're always. We're humans, we're always going to experience these emotions. But the best simply use these emotions to their advantage, right? They essentially are aware of them, but then they're able to make that choice to do the right thing despite those emotions, even use those emotions to your advantage to bring you to kind of a higher level of understanding. I think that's a really good start. I think that's a really good place. And perhaps some of you in the room, that might be the ultimate place where you find strength and the ability to have this patience and do what you need to do. I think there could be a better way, though. So this is just my take on this. I think we can work on these things as traitors to actually circumvent the emotions. Now, typically, what this is seen, like when you're dealing, when you're in that moment of suffering, when you're experiencing that FOMO and you're in itching to pull the trigger and you're now all of a sudden there's all this uncertainty and all these things we deal with on a daily basis. It's kind of a fight or a battle at least internally. Right. That conflict may be totally within yourself. Some people experience it as a fight with the market, which I think is also not a healthy place to be.

We don't want to avoid the emotions where I'm not telling you, that's anybody who tells you, just like avoid the emotions, like sweep it under a rug. That's very, very bad advice. We're not going to ignore anything, but we're essentially going to try and tell you about a way to. You know, Mark Douglas, trading in the Zone, right. The best traders think about trading differently. And so that's what I'm talking about here. We're going to be able to prevent the emotions from even rising up within us and trying to make us do something that we shouldn't for our methodology. So let's break it down. I got some points here. Number one, doing nothing is an action. Okay, sounds kind of silly, but doing nothing is actually something where you're doing something to do nothing. It's not just the absence of action, it's actually doing something. So think about that. Two, it requires conscious control. One of the things that I talk to my guys in the futures desk about frequently is just sitting there in your chair, even if you've got a lot of experience and just kind of drifting off into what I call autopilot mode can be really, really bad because that's when you do something dumb because you're not taking conscious control of your decision making. So it's not something you just hear once and can be different. I can't say, hey, take conscious control of your trading. You know, you have to decide to actually train on this skill of doing nothing. What do we mean when we say gain conscious control over your trading? What would the opposite of that look like? Right? What would not doing that? Well, you're sitting there drifting off, just kind of, you get sucked into the tape reading or whatnot and you forget about context, right? All of a sudden you find yourself fighting a trend all day. Then you're kicking your butt at the end of the day saying, I'm an idiot. You know, a couple things that I found helpful to help implement improving conscious control over your trading. One thing's called a loop timer. Super simple stupid thing. Google it, find it. Free ones are out there. You'll hear A ding like every five minutes, every 10 minutes. Just a simple thing. You don't have to go turn off the alarm. You don't have to do anything. But what does that do? It's almost like a giving. You know, we're like animals, like giving a dog a command or something and all of a sudden they're like, you know, a dog will come out of like, where was I? What was I doing? We're the same way. Snap yourself out of that kind of autopilot mode and come back to a place where, hey, let me step through my top down approach here. Let me check the higher timeframes. Let me make sure that this is in my playbook because, boy, I was about to do something stupid there. I wasn't really thinking about it consciously. Journaling is big. Journaling is huge. It's so easy to just.

Want to be a big boy, want to just focus on the real sexy stuff and the important stuff. But journaling thoughts, one of the most important things I think someone can journal is not why you got in, what the price was that you got in, how many shares you got. Journal opportunities that you are what I call stalking. Journal the trades that you're considering taking. Why is that? That's going to prevent us from some real BS in our review process. You get to the end of the day and it's, it's very amateur. But I really encourage you guys to guard against this.

Looking back and saying, ah, I'm an idiot. I should have bought there. I should have done that, right? It was a great move.

If you weren't journaling about the opportunities that you could truly see at your current level of development, at your current level of skills and awareness. You actually don't have proof that of really anything about that moment. But if you can look back, you may have been stalking short when that was a long. And that's going to be a real, real eye opener. It's like athletes, you know, football players reviewing game film and the ability to actually look at what you were capable of in the moment versus just saying, well, you know, when I think about it, I could have done this or should have done this. Really powerful. So journaling in that moment brings conscious awareness to what you're doing. And it's a great review tool. As I mentioned.

You know, I'm sure Bella's got you guys.

Very much on your radar. Mindfulness training, all that kind of stuff, yoga, connecting breath with physical action, all that type stuff are ways to improve self awareness. Mindfulness, taking conscious control about what you're doing. And then quite simply, checklists. Sounds kind of stupid, but once you hone in on a process for trading and opening drive trading, especially slower things like a second day play or whatnot.

If you find yourself maybe missing a few key variables, making a few mistakes.

Think through, you know, okay, I absolutely can't miss this variable, this component of the trade. And then just force yourself before you ever take one of those trades. Just make sure it meets like three simple criteria or something. It doesn't have to be complex, you don't have to write a dissertation on the trade before you take it. But have something out on your desk. Maybe it's a post it note, whatever, check off. Okay, Higher time frame, key level makes sense. You know, trading time frame, this type of weakness on the tape makes sense. The price actions opened up and I'm seeing, you know, xyz, it makes sense. Come up with those things, have it as a part of your playbook and have it as a conscious decision making type thing right in front of you.

Okay, Number three requires a process driven approach for your strategy. I'm a discretionary trader. Are any of you here totally focused on like pure, purely being on the quant team or anything like that? Are you guys all here to be like pretty much discretionary intraday? Yeah. Okay, so just because I say you want to be process driven in your approach does not by any means whatsoever mean that you can't be discretionary. Right. You know, how do you define a trend right? Doesn't really matter, right? You can have your own definition and it doesn't have to be quantitative. You can look at a chart and say, well, it's going from bottom left to upper right. So I say it's an uptrend, fine, good for you. But if maybe you're taking a checklist approach and you want to make sure not to fade a trend on whatever time frame, have that as a part of your checks. As a process driven approach, the input can be discretionary. But the fact that it has to be checked and has to be a part of what you do can be very process driven.

Obviously building out a documented playbook, understanding exactly when, where, under what contextual situations you do have edge. So with this understanding, you now have moments where it becomes true and a lot more moments where it's not true, where you don't have an edge. Right. Some of you may have some good experience and you start saying, okay, I understand, I already have a playbook, I understand where I have edge. The problem is, Marian, I jumped the gun. I say that.

Oh, I say that comes down to two things. One is a mental framework and two is a better thing that I want to tell you about, which is a more process driven execution strategy a lot of people think through. Okay, I want to have a miss on earnings, I want to have it break down a key level in the daily. I want to look for XYZ on the tape, blah, blah, blah. But a lot of people don't actually go from playbooking the kind of the overall setup and thesis and idea for a trade down to like what makes you pull the trigger on a trade. Do you have variables for that or are you just kind of like floating around kind of saying, well, you know, I saw a bit of selling on the tape and I jumped at it. Right. I saw a little bit of absorption, an offer that wasn't lifting and it got hit. For some, some that very well may be an actual trigger for you. But I encourage you to, as a part of you building out your trading business, to not just think of the bigger picture overall, things which are extremely important when you consider your edge in your playbook. But if you do experience fomo, if you do experience trading where you don't have edge, really think through to that final, final stage of the stalking a trade and whatnot, to where you finally hit the hotkey and really think, what does it take for me to truly hit the hotkey? You could, you could come up maybe. I think for most it's probably going to end up being maybe a list of five or six things. If I see this, that is a press the button moment and that's compartmentalized within the overall.

Contextual edge that you would have with all the things you're putting together. Hypos. Do you guys do a morning sheet? Do you put down if, then scenarios, those type things. Good, good, good. So I call them hypos, hypotheses.

But it's the same thing. I encourage you, if you find yourself dealing with the need for more patience and not trading where you shouldn't be, to not only do hypos for if I see this, I will trade here. I'm very interested in this. If I, if this level breaks down, blah, blah, blah, feel free to have a hypo. Maybe it's something that you don't share in the morning sheet. Maybe it's something you just keep on your own, have a hypo for. If we're between this level and this level, I'm not going to touch it. Right. Actually be proactive about a no Trade zone or something like that. For me, I'm a big market profile guy. Classic situation would be the S and P opens up small smack dab in the middle of yesterday's real fat balance area, value area. Not a lot of edge in that high volume zone there to lean off of. Not, there's not going to be a good level there unless you see a really strong drive from like the VPOC or something like that. But still that's reactive, not anticipatory. So for me to find a trade in that situation, I'm going to come into that session say no trade zone unless we test one of those edges of prior value and begin to fail or something like that. And then finally, number six, thorough review process. I know you guys are putting in the work, I know y' all are doing it, but the use of statistics and tagging in trader view. Tag your trades, Tag your trades. Tag your trades and get creative about what you're tagging. You know, feel free to not just say opening drive play and that's the tag, but perhaps there's some contextual tags in there. What was the overall market doing at the time? What are some other variables that you can connect that might have played a role in that trade? Maybe it's not even something that you're aware of yet, but you realize it has the potential to be a big factor on the success or failure of those trades and begin to track those and understand them and then you're going to collect some data because right now you don't know what the heck's going on. But once you have the data now, you can use that as really, really powerful way to say, hmm, you know, this is a good play, but it's underperforming in this particular situation. Right. I just got through reading the new book on Jim Simon's Renaissance Medallion Fund. Those guys, it's a fantastic read. But those guys are putting things together mathematically and machine learning wise and whatnot. That we might not connect. So as discretionary traders, doesn't mean that you should go try machine learning right off the bat as you're studying opening drive plays. But it does mean perhaps study your opening drive plays and whether or not they're in the same direction as a gap in the overall market, right? Whether or not it's in the same direction of it's with or against the strength or over performance underperformance of the sector that it's in, things like that, and start to piece that together. If you find a little piece of under performance within a Setup with edge, it's like you just found a new edge. It's just as good. Helping your bottom line is just as good as anything else you can do as a trader. So don't forget to find those things.

So patience.

You know, doing nothing is an action. Find ways to take conscious control. Think about your thinking.

Be process driven in your approach, even if it's discretionary.

Have an execution strategy, not just a playbook for setups with edge, but all the way down to here's how I press the button, when and why. Feel free to use hypos to consider where not to trade as something that you're really being proactive about. And then really use the review process to find places where you may still have an edge, but you can highlight areas where there's an underperformance. So anyways, I was just sitting and thinking about ways that I could be helpful to y', all, putting myself in your shoes when I was there years and years ago. And definitely one of the things that this talk would have helped me in 2015 to perhaps take a step back and consider where not to over trade, where not to trade and have that on my radar as something as I look to develop as a trader. Any questions? Anything you guys want to ask about with patience or conscious trading or anything, just want to ask about your trading. Why go back to futures? What made you go back?

So, for example, some tools like cumulative delta and things like that become pretty complicated with equities.

The approach of trading in play names which are, let's say, gapping plus or minus 3% plus out of areas.

You're leaving what I call areas of recent structure in terms of like market profile, volume profile, where that recent auction process has been occurring. Well, you're just leaving that stuff entirely. And what I'd been doing and having success with before was leaning on that structure for my trading. So stuff that's in place is typically gone from there. Right. And for me, when I get into those areas, sometimes I feel kind of naked. I feel like I don't have as much of a compass in those areas as I do think of it like second day plays. Really, that's kind of like more my specialty where I've got some structure to lean on. I've got some really key areas where I can find what the auctions up to. I like to find things and say like crude oil or the S and P, for example, where we do build that structure and I get in earlier than when it's the opening bells is sounding two days later. And we're gapping 3%. Right? So it's just. For me, it was part of the process of honing in on niche and what made the most sense to me and things like that. You mentioned something along the lines of finding under performance in a setup. Have the ability to find edge in that. By this do you mean being able to reverse a strategy? No, definitely not reverse the strategy, but find. So let's say that you have a particular playbook trade, your ABC trade, you call it, okay. And you're documenting it, you're finding a lot of examples of it, and it shows that it works. What may not be obviously apparent at the onset is going to be some situations. Obviously, all playbooks, all setups with edge, they still have losers, right? And I'm not here to tell you you can find a way to avoid all the losers. I mean, that's a terrible mindset. Losers is part of being a trader. It's part of doing what we do. So just that with a caveat. But doesn't mean you can't keep working on the edge and find areas where in certain. I think context is king. I think you always need to consider context, right? If all of a sudden you're an ascending wedge after a technical break master, that's like what you do. You. You even code it up. Are you guys doing some stuff and working on that? You code it up to where you find patterns, you search thousands of stocks for those. And rather than just implement that across every single one, you understand context is a factor. So not every single, not all ascending wedges are created equal, right? So just as a simple example, find some contextual pieces where you may have an edge overall, but it underperforms in so certain conditions. And if you can just scale back the size or avoid those conditions where it underperforms, all of a sudden that's going from a 12 cent per share edge to a 20 cent per share edge. If you can bump up that bottom line and avoid a few losers. Well, enjoy, guys.

It'S a hard time. I know you guys are probably working weekends, doing all kinds of stuff and grinding and new to the big city and whatnot. I came from a dirt road in Alabama. I didn't ever think I'd be in a place like this, but.

Enjoy the time. It's a.

The hard work pays off. And if you can find a way to just like Bella talks about, you know, finding your niche, find those things that make sense to you, study the heck out of them. Find, find little areas, contextual places, where they don't work as well. Just keep edges are thin, you know, edges are thin, so keep grinding and enjoy the process. I hope you've gained something from sitting in on this talk we had on patience in trading. What stood out to you as most helpful? Was there something you really disagreed with, felt that we left out? Let us know in the comments below. And as always, if you want to get involved with S and B futures, check us out@SMB futures.com trade well.