Tuesday, June 26, 2012

Trading is not a game of perfect

Psychological aspects from other walks of life can easily be applied to trading. I'm a keen golfer, and one of the most prominent sports psychologists is Dr Bob Rotella, who has worked with many of the world's top golfers over the last 20 years. His first book 'Golf is Not a Game of Perfect' is one of the most prominent books of its type.

In one of his later books, he talks about an amateur golfer who he had worked with, who was preparing for his Club Championship at the famed Pine Valley course in the US. 

He had decided to keep two types of score - one, the usual number of strokes taken on each hole. The second was to keep track of whether he fully committed to each shot, went through his physical and mental pre-shot routine, executed the shot as good as he could, and (most critically) was able to fully accept the end result. In other words, whether he was able to focus solely on the process rather than worrying about the outcome.

At the end of the round, he came off the course, and had actually succeeded in shooting 67, easily the lowest competitive round he had shot at Pine Valley. He ended up winning the tournament by seven shots. Yet, as he came off the course following that first round, the actual score was the last thing on his mind. An assistant pro asked him what he had shot. "Eighty three percent" the golfer replied. He had calculated he had stuck to his routine on 56 of his 67 shots. The actual score was incidental. What does this mean from a trading perspective?
  • Focus on the process (method) rather than the outcome, and ensure that a) all new positions are in accordance with your system rules, and b) You adhere to your stop signals at all times;
  • The outcome you cannot influence, as it subject to outside forces - accept that there are things that you cannot control such as unexpected news releases, changes in market forces etc ;
  • Whatever the outcome, accept the result and move on - if you know that your system has a historical positive expectancy, you will also know that not all trades work out. Over the long run, you will make money, so forget about any losing trade and focus on the next trade, which may be a big winner.
Golfers can line a 6-foot putt up perfectly, make a smooth on line stroke, and hit the ball on the intended line, at the correct speed. Yet, because of imperfections on the green, the ball may not go in the hole. All you can do is console yourself that you kept your side of the bargain, and resolve the repeat the process the next time.

In trading, that means sticking to your rules, making a good bet rather than a bad bet (as discussed in this post) and accept that you can only control the controllable (refer to this post). And the closer you can get to a 100% success rate, the better a trader you will be.

No comments:

Post a comment