By Rob Colville on December 26, 2015 in
Here around the holidays and year-end, do you find yourself making some resolutions for the year ahead? If so, what are the things you hope to accomplish in 2016 with respect to your trading? For many traders, it’s as simple as “Make more money,” or “Become an all-around better trader.” I like to encourage traders to be much more specific, though, and there’s a particular objective that I think gets overlooked far too often: Proper trade timing.
Now trade timing is ultimately not about being “right” about the markets, or picking more precise turning points. Actually, trade timing is often about exercising more patience and precision, and trading with greater efficiency and less risk. It’s a proven means to more successful trading, so as you take time to assess where you are right now in your trading, decide where you want to go, and most importantly, chart a path for getting there, here’s why improved trade timing should probably be among your New Years’ resolutions in 2016.
Often lost in our desire to identify set-ups, or even be “right” about the direction of the markets is the fact that trade timing is crucial to both! Technical traders read charts every day, and even once a set-up is identified, if the corresponding entry is taken too early or too late, profitability can be affected or even erased entirely.
That’s why really mastering a pattern or set-up takes more than learning to identify it; you have to also know when to enter (and exit) in order to get an optimal reward/risk profile. As a result, don’t just practice pattern recognition! Also practice more precise trade timing, where you execute at the exact location of price where probability and reward/risk are in your favor. And, if you do, you may also receive the benefit of additional signals that further justify your position.
For example, here’s a scenario unfolding right now in EURGBP:
As seen on the weekly chart above, price is clearly range-bound and moving higher to test established overhead resistance. It seems like a quality trading opportunity is in the offing, and I’ve heard plenty of buzz already about traders looking to “Get in early ahead of the curve.” However—and this is the key point of this example—the trade timing is not right just yet!
Instead, as is consistent with our trading methodology, we would ideally wait for price to approach or even formally test resistance, then put in a qualifying signal like a bearish pin bar reversal. Executing there and in that fashion would provide the optimum reward/risk profile, as well as offer a valuable confirmation signal, and one that just so happens to be the cornerstone of our trading strategy! And this is merely one example of why trade timing is so critical. So what should you do from here?
Both in the analysis and pre-planning stages, and even when journaling your trades, make trade timing a priority! Consider it a key component to each trade so you think about it each time, and you monitor it afterwards. In total, consider making one of your stated objectives for 2016 to “Practice and encourage more efficient trade timing,” rather than using blanket statements like “Make more money trading.” You may soon see that better trade timing is a gateway to that very end, anyway! Here’s how to do it:
Rely on Your Watch List: When you see a quality set-up that’s still in the development stages—like the EURGBP example above—add it to your formal watch list, and document your intentions to take that set-up at a later time provided all parameters satisfy the requirements of your trading strategy. This will keep you intently focused on the set-up, while also making you accountable for observing the proper trade timing.
Make Trade Timing One of Your Metrics: Make trade timing a component of larger plan compliance as well, and whenever assessing your performance and/or documenting the results of your trades in your trade journal, use that, in part, to determine how you did. Remember, plan compliance, not profits or win rate, is always most important when rating the quality of your short- and even mid-term trading performance.
Aspire for “Sniper-Like” Patience/Precision: Rather than a “machine-gun” style, which sprays “bullets” (trades) across a general area, a sniper is calculating and precise, planning extensively but shooting only once or twice to engage their target. Consider this analogy as a guide, and certainly set your sights upon optimal trade timing, but realize that nothing in trading is ever “perfect,” this included.
It’s often subtle differences that separate experienced, profitable traders from the majority who struggle and ultimately fail. So what’s the “secret?” Well, it’s not necessarily what market(s) and set-up(s) they trade, but instead, it’s all about how—and especially when—they trade it. So ask yourself, if trade timing is the subtle difference that could take your trading to the next level, then why not make that one of your top priorities for the year ahead?
Focus more intently on trade timing to promote higher probability; do it to increase reward and decrease risk; and perhaps most of all, do it because other traders often don’t! Here’s hoping your best-ever trading results are coming your way in the year ahead, and that these tips, in part, help you to achieve them!