Trading mechanics are much like the mechanics you need when shooting a basketball. You have to repeatedly practice them until the point they become rote. Sell into strength. Buy into weakness. Stick to liquid underlyings with high implied volatility. Take profits on defined risk trades at 50%; 25% in undefined risk trades. Adjust your deltas when needed. You get the point.
But here’s what I mean about basketball. I began playing when I was thirteen. I decided to attend a basketball camp and it didn’t take me long to attract attention from the people running it. Not because I was good...in fact, quite the opposite.
We were doing a simple layup drill and I made my first couple shots when someone pulled me aside and said to act as though I was getting ready to shoot. He pushed my elbow in closer to my body and said, “One plane. Keep your shoulder, elbow and wrist in one plane. Now get back out there.” So I did. And I proceeded to miss every shot for the rest of the drill.
After our session, the same guy pulled me aside and told me great shooters are great not because they’re athletic. They’re great because they are mechanically sound. They learn how to do something properly and then repeat the process every time. If I wanted to be any good, he told me, I had to get my mechanics down.
I went back to that basketball camp the following year. Our first drill was again a simple layup drill. After my first shot, which I made, the same guy pulled me aside and asked what I was muttering to myself. I didn’t have a clue what he was talking about. Then it hit me.
I had been saying that to myself so often over the past year, I didn’t realize I was saying it out loud. It had become rote. Trading mechanics are no different. Study, execute, rinse and repeat until they become reflexive. This month has seen wild fluctuations in the market that it would be easy to react quickly, and it is hard not to when you see spikes and contractions in volatility. But staying mechanical works.
Back to the story: A few years after first attending that camp, I enrolled at University of Illinois on a wheelchair basketball scholarship, the same place where the camp was held. It took three losses in the National Championship game before we finally won my senior year. The “guy” who pulled me aside when I was thirteen would end up being my college coach as well as my coach when I became the youngest member named to the first ever USA Basketball sponsored wheelchair team. That’s really not a testament to me but rather just how far sound mechanics can take you.
How do you stay mechanical in your trades? Leave a comment below or let us know at firstname.lastname@example.org!
Josh Fabian has been trading futures and derivatives for more than 25 years.
For more on this topic see:
The Experiment | Trading Like a Machine - November 18, 2015
WDIS: Bat vs. Bat: Closing Mechanics | Consistency - September 16, 2015