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Waiting For the Perfect Wave

By Ed Martin  |  
Andrew's Newsletter  |  
Dec 20, 2021

A couple of days ago a member sent me an email with a post that said, “a trader can’t force a trade any more than a surfer can force a wave to come together. Great surfers wait. They recognize patterns. When they see the perfect wave coming, they put themselves in the best possible position to catch it”. If you think about it, that is what traders do. It’s pretty much a 3-step process.

Step 1: Preparation – As a surfer looks to wade out into the ocean, preparation is taking place. They are making sure they have their gear together and that it’s in good shape. They observe the rhythm of the ocean, and as they are wading out, they take note of the waves they are paddling through. The timing of when to attack a wave is critical. They are preparing mentally as well because they will need incredible focus to complete their mission.

Sounds familiar, right? As a trader, our preparation begins in the morning with our routine. We are making sure our tools are working correctly and that we are prepared for the next steps. We observe the market, watching the price action closely, trying to get a feel for the pulse and rhythm of the market. As we scan through the sea of stocks, we are taking note of how they are responding to the market. We are sifting through getting a feel for them that day. Preparing our mind on how we will attack the day. We will need that focus to work through our day

Preparation puts us in the best possible position to “catch” the best trades.

Step 2: Patience– To quote a professional surfer, Natxo González, “There are some sessions where you can be in the water for six hours, but you only get one wave or, if you are lucky, three waves.” “You have to calculate perfectly the waves you can get and not make any mistakes, because your life is at stake.“ “You have to be patient and not panic.” “You are waiting for hours for one wave and then you get 30 seconds of a crazy wave, crazy fast,” reveals Gonzaléz. “The intensity of that 30 seconds is worth it for all of us! One wave can make your trip, make your career, it is the highlight of the year. The feeling, that adrenaline… that is why I travel around the world.”

That closely explains our cycle of trading. Sometimes we are waiting a long time for a setup to materialize. We must perfectly calculate the key levels for our trade. Our stop trigger, our entry trigger, and our profit targets. No, a mistake will not cost us our physical life, but it can cost us our trading life. If we are not getting an entry trigger, we shouldn’t just panic and make hasty decisions. When our trade comes, and it works to perfection, that feeling we get in inexplicable, and is what keeps us coming back for more. But in between those great trades, we must stay consistent with our approach and keep our emotions in check, and that will take patience as well as discipline

We must be patient and disciplined. We cannot let emotions take over our brains or we will most likely end up making the worst trade choices.

Step 3: Pivot– If you watch a surfer, you will sometimes observe as they prepare to ride a wave it seems at the right moment, they make a decisive Pivot. The decision is to pivot and either duck under the wave and let it ride by and move to the next one, or kick with the wave back to shore while physically pivoting onto the board. Then, if it’s a good wave, they Pivot again during the ride to get as much value out of it. And it seems the more they Pivot – small pivots – the longer they tend to stay up. For the surfer, not Pivoting can be catastrophic. The same is true for traders.

Trading has its uncertainties, but those uncertainties, like the rip curl of a wave are best navigated by making pivots. A rip curl is the leading edge of a breaking wave, and it can cause a nasty wipeout if you aren’t ready. The collapse of the wave can be brutal. But a rip curl is also what creates the mouth of a barrel or “tube” as the collapsing wave rolls in. A great surfer will pivot to ride the tube — inside if they can. Whereas, others who don’t pivot, will wipe out experiencing the brunt of the collapsing wave.

We often find ourselves at these decisive points in our trading. A point where we must decide which way to pivot with the stock. Whether to pass on it or ride with it. It is also critical that we are able to read the price action well enough to know when to reverse pivot and bail out because the trade is losing energy or continue to pivot with the stock and ride it to the finish line. Every challenge in trading is like the rip curl. How we pivot can make all the difference in our trading results.

In the end, we must be prepared. Choose what it is you need to do. Be Patient. Know when the timing is right to seize the wave — the opportunity in front of you. Take Pivots. Realize every opportunity comes with a few challenges but learn to Pivot. Adjust as you need to, and if you do, you’ll find success in your trading journey!