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The Sport of Trading - Part II

Last updated 10/12/2012 4:24 PM EST (GMT -5) 0 Comments - Add your comment

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Neal Gilbert

Technical Analyst, GFT

Follow @FXexaminer

*** This is the second of a two part series I wrote earlier this year as a contribution to a publication which you can find here.  The first half of the series was published last week and you can find that here.  ***

I have always believed that the best and easiest way to learn something new is to compare to the familiar. For many people, a great analogy is sports, as the lessons learned on the playing fields of many games played can often be transitioned to daily living.    The sport of trading is no different. It doesn’t matter whether you trade spread bets, equities, currencies, or any other medium; there are some cardinal rules to live by for all:  

1.       Hockey – Stitch it up, and get back out there.

When trading, nobody is going to feel bad for you. Ok, maybe your spouse or your mom, but other than that, nobody will wallow in self pity with you. Get over it. Hockey players are renowned for their toughness. Take a slap shot to the face? Get your stitches and don’t miss your next shift. Elbow to the teeth? Spit them out at the guy and smile. 

As famous politician Ben Franklin once said, “Those things that hurt, instruct.” Toughness is a required attribute to trade any market. Having a few bad trades in a row, or a bad week, or a bad month for that matter isn’t a good enough reason to quit. Learn from them and don’t make the same mistake again. Rome wasn’t built in a day, and your trading acumen won’t be either. Sometimes the best quality any trader can have is the never say die attitude that helps them fight through adversity. It makes the prize that much more sweet in the end.

2.       Basketball – Sometimes talent is all you need.

Let’s face it. Some guys have all the luck. However, some guys have all the skills too. You could read all of the advice from all of the authors of this website and memorize all the information, but will that make you a successful trader? Maybe, maybe not. Sometimes it comes down to your DNA. 

When you take a look at the majority of players in the NBA, what is a prevailing similarity? They are either a) tall, b) athletic, c) freakishly quick or d) all of the above. It just doesn’t seem fair, but guess what, life ain’t fair! Some people are genetically predispositioned to be NBA players, but notice I said that MOST players have one or all of those qualities. One thing we never see is the hard work that is put in behind the scenes by those who don’t possess those qualities. Some guys don’t have all the luck, but they work hard enough to make that luck. 

My boss always used to tell me, “The harder you work, the luckier you get.” And that mantra holds for trading as well. If you aren’t one of the lucky ones that just “gets it” right away, the hard work that you put in could get you there. 

3.       Golf – Psychology is more important than you think.

How many times have you been having a decent round of golf, shooting your best ever score, and then blow it in the last few holes? Personally, it is more times than I care to admit. I start thinking about that low number and how I can gloat and then - I lose focus. Suddenly I hit a careless shot that goes in to the pond, or I four-putt a green that should have been easy. Now I’m angry and I want to take it out on the ball and make up the lost ground that I had worked so tirelessly to gain. I grip the club tighter, I don’t think positively, and I swing as hard as I can. 

We’ve all been there, the outcome usually isn’t good. There is a quote from legendary golfer Bobby Jones that says, “Competitive golf is played mainly on a 5 and a half inch course, the space between your ears.” Trading can be looked upon in the same fashion. It’s not so much how you place your trades as how you manage them. Losing on a trade you felt you should have won usually makes you start thinking about revenge. You then lose focus, and end up shanking that next trade. Admission is the first step to recovery, so recognize the feelings of revenge and temper them before they hijack your trading account.

4.       Volleyball – You have to serve to start the game.

One of the hardest hurdles to get over when trading is mustering the confidence to place the trade. For most, there is always that seed of doubt that you might be wrong, so maybe you need to wait and analyze some more before taking that plunge. This is often times referred to as Paralysis of Analysis. You try to think of every single outcome before you place your faith in your original assumption. 

For most people, their first instinct is the correct one; just manage your risk and place your trade. Just as a volleyball player needs to serve the ball over the net to start the game, a trader needs to place the trade before he can win or lose.

5.       Boxing – Failing to plan is planning to fail.

The great boxer, Muhammad Ali once said, “ The fight is won or lost far away from witnesses- behind the lines, in the gym, and out there on the road, long before I dance under those lights.” The parallel to trading here is that much of the work for a successful trade goes in long before it is placed. Know what you are trading, what is expected to happen, and what might happen if you lose. 

Just placing trades on a whim often leads to disappointment and disaster that can easily be avoided by knowing about your surroundings. Whether your plan revolves around staying up to date with current events, utilizing chart patterns, or ignoring it altogether, you should always have a plan. Once you place that trade though, you need to make the determination of whether you are going to stick with the plan or modify it based on what is happening around you. Just as a champion boxer might not have the right plan at the beginning of the fight, he quickly adapts and finds other ways to eventually score the knockout.

As you can see, whether we realize it or not, from the days of childhood, we have been preparing ourselves for the sport of trading.    The discipline, perseverance, grit, strategy, creativity, and emotional control that allow you to participate and excel in the physical sport of your choosing, has been preparing you for the mental sport of trading all along. So take those lessons to heart, enjoy the fruits of your labor, and put that education to good use!

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About The Author

Neal Gilbert, an avid follower of the markets, began working at GFT in 2006, educating new and experienced traders in an easy-to-understand manner. His focus has been teaching common technical indicators, risk management, and sharing his favourite trading strategies. His Braving the Rapids strategy guide can be found on GFT’s website.

Neal conducts live webinars throughout the day, including his” Long and Short of It,” which is a Fundamental Live Market Analysis webinar centred on key economic releases. He also conducts webinars in Basic and Advanced Technical Indicators, Volatility and Risk Management, Trader’s Edge, and Fibonacci Trading and Theory.