Pal Benko, a chess grandmaster said: 

“Patience is the most valuable trait of the endgame player. In the endgame, the most common errors, besides those resulting from ignorance of theory, are caused by either impatience, complacency, exhaustion, or all of the above.” 

1) Ignorance of theory

2) Impatience / Patience

3) Complacency

4) Exhaustion

See this 1 chess lesson morphed into 4 lessons:

Let me have a little go at highlighting some things that we can perhaps learn from this chess quote that apply to trading.  (I’d love it if you told me yours in the comment section below. Go on, be brave and join in – dialogue is good :-))

1) Ignorance of Theory 

Ed Seykota has been recorded as saying something like: until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.  

Naturally with trading, getting comfortable with the basics is an important step.  Make sure, however, not to end up one of those paralysed and stuck in student mode.  At some point you have to be willing to move from student to trader. One of the useful ways of ‘spending time with traders’ if you are not employed in a trading firm is to utilise things like Stocktwits, trading groups, forums etc.

2) Impatience / Patience    

I’ve seen this plaguing my trading in the past and I see it over and over again with traders I interact with. The impatience / patience continuum can bite you in the ass in many ways with trading.  Impatience can get you into trades that you really should have sat out of.  It can get you fighting the major current of the market as a result of feeling like you are missing the boat. It can make you think you have to be trading all the time.  

Then there is the other side to the coin.  Being patient enough to sit with a winner can be very tough.  Patiently taking a string of losses that fit with the parameters of your method can be emotionally tough.

I honestly think patience or lack of it is one of the most significant areas traders in general need to work on. 

3) Complacency

When I think of complacency two major things come to mind:  

Often a traders biggest loss comes after a string of winners.  This is well documented and suggests to me that complacency is present.  The ‘every swing I take is a home run feeling’ or the ‘I can do no wrong feeling’.  Sure enough when in this state the market is all too willing to smash you back down hard as a reminder of your mortality.  

The other thing I think of are traders who have taken their foot off the gas.  Who have decided that their approach is the only thing that works and will never need changing.  You have to stay on your toes.  The chances of the same approach working over and over ad infinitum are slim.  It may not need a complete overhaul and rather only subtle changes but it is complacent to believe something is a sure thing.

4) Exhaustion

Most traders are imminently aware of their account balance – what I think many don’t think about is their emotional balance.  Trading can take a serious toll on your emotional balance.  It is a competitive endeavour that requires decision making under stressful conditions.  Each trade you chose to assess and then take uses up some of this emotional capital.  You need to be aware of this.  Not doing so leads not only to exhaustion but possible burn out.  

As I said I’d love to read some examples from you on these points as they pertain to trading in the comments section.  If you’d like maybe we can go into these areas in more detail in the future.