I had an interesting conversation after the close today with a newb trader who is attempting to become consistently profitable.  I asked this very intelligent and competitive young woman what were her strongest qualities as a trader. The first thing out of her mouth was she was not afraid to let her winners run.  She then added that she felt she was very disciplined in terms of the number of trades she takes each day as well as the number of stocks that she allows herself to trade.  I agreed with her assessment.

I then asked her if she had drawn any conclusions as to why her results were not where she wanted them to be?  She thought for a moment and then suggested that perhaps she was spending too much time making trades in stocks she was comfortable with but didn’t necessarily offer the greatest risk/reward setups on a daily basis.  I agreed with her assessment.

I then suggested to her that she could take these two strengths: the fortitude to allow her winners to run and her well above average patience in terms of allowing the best setups to materialize to greatly improve her results.

I discussed with her a setup in BIDU from yesterday that involved using a lower time frame entry to minimize her risk but utilized a higher time frame trend to hold for a very large reward.  We discussed the pattern briefly and her analysis on how to trade the pattern was spot on.  I was satisfied that she would be able to find this pattern again in the market and make this trade.

Then to my surprise she told me about a trade in RIMM that she had made today, which applied the basic principles we had discussed in relation to the prior day’s setup in BIDU.  The trades were not exactly the same but she was employing the higher time frame trend to determine the direction of her trade while using a lower time frame entry to minimize her risk.

Here are the two setups we discussed: