Taking Control of Our Trading Madness

• Posted by Derek
• on March 23rd, 2013

Somewhere in my DNA is this inexplicable need to create trading analogies from other disciplines. I’ve always thought of trading through the eyes of a quarterback, whose plan can go awry in a moment if the opponent’s coverage scheme is not exactly as expected. It’s in those moments, not in the comfort of the scouting combine, when separation is obvious between an average and elite field general.

This week my thoughts turned to hoops. Instead of just enjoying the games, though, I couldn’t help but solidify an observation that came to me recently. A friend of mine is a successful high school basketball coach, and on a recent trip with our kids I saw just how focused and passionate he was about his craft. On the treadmill at 6am on a Sunday, he was studying film and game planning what was to come for the week. Totally something I would do in planning my own “game”, which is one reason I enjoy his company.

My thought at the time was, all this preparation, and at the end of the day the best plan is handed over to kids who may or may not recall exactly what to do when the moment strikes. Or may or may not hit the open shot that was created through a well-devised scheme. Or stop the opponent from hitting a shot no matter how perfect the defensive posture.

Some of this is just like trading the markets. We can control our actions, but the market will dictate the outcome. The difference is that we as traders have full control over implementation of our plan. A coach can only hope his players will a) draw upon deliberate practice concepts to make good decisions, and b) overcome the intense emotion of the moment and still follow instructions.

Prime exhibit this week? 14 seed Davidson College vs. 3 seed Marquette. I’ve grown into a Davidson fan over the years, partly because of its beautiful little campus 20 miles up the road but also because of the way in which the coach runs the program. Yes, he was lucky to have Stephen Curry in that magical run towards the Final 4 a few years back, but I think Curry was lucky to have him too.

I was able to flip on this week’s game for the last 2 minutes, with Davidson holding a 7 point lead. Marquette came out of nowhere to hit three 3-pointers after hitting only one all game, and the best free throw shooting team in the country missed a couple. But they still had the lead and the ball in the final seconds when Coach McKillop had to witness a failure of item B from above. A player with a 75% success rate at the free throw line took a chance that an upcourt pass could ice the game; it slid out of bounds by inches, and Marquette delivered another great shot to win the game. That’s March Madness at its peak, ecstasy on one side and heartbreak on the other.

A trader with a systematic process has no such stress. We will get a sample size of thousands of trades upon which to build a performance record. With reasonable risk controls, our game/season/career will not come down to one possession, as we can build a lifetime of possessions within which a positive expectancy can have on ongoing effect.

A coach can do wonders if he/she can find players with an open mind, and then instill a belief in process into each one…look no further than Andy Enfield at Florida Gulf Coast to see a miracle at work. As traders, we have the luxury of instilling that belief only into ourselves, and planning exactly how we’ll respond to each scenario. Funny how powerful the role of confidence is on performance, no matter our chosen domain.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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