One thing I’ve written about before is that basketball has played a salient role in my life. So it makes sense that I’m big on using sports metaphors for trading. So here are my thoughts on what successful basketball players and traders both do.
They Know Their Shooting Range
The first thing I did after a game was grab the score book where we tracked individual player stats. What I cared about was my shooting percentage and from where I shot well and where I didn’t. Trading is the same.
Traders remember their bad trades better than their best ones. Each week, I review my trades from the week prior. I take inventory of strategies deployed, I question if the trade was made for the correct reasons (e.g., high IV, liquid market, price extreme, etc.). Then I evaluate whether trades gone bad were a result of user error or if the market was the culprit.
Just like knowing what kind of shot or play works against what defense, learning what strategies work well in what environments is crucial to trading well. Reviewing your trades helps you learn and get better.
They Make Mechanics Reflexive
When a shooter is shooting well, they often talk about “being in the zone.” What that really means is they do not need to think about what they’re doing. Everything is reflexive. But it comes from practice. Again, trading is the same.
Our dough platform offers a visual allowing traders to see one, two or three standard deviation ranges for the stock price. For new traders, I think this is invaluable when selecting correct strike prices for trades with a high probability of success. Great traders go through this process in seconds. Almost reflexively. And they do that by trading every day.
They Try to ‘Shoot Through It’
Ever see a good shooter having a bad game but they just keep shooting? That’s often referred to as “shooting through it.” Shooters know they’re better than how they’re performing, and come hell or high water, they’re going to prove it. Guess what? Trading is the same.
I do not know a trader who doesn’t have assumptions about the market. But there is a big difference between having an opinion and insisting you’re correct. At tastytrade, one of the things we talk about is waiting until we’re right. If a trade goes against us, we look give the trade time to win. Even if our original assumption is wrong, we use strategies like rolling, cost basis reduction, and duration to try to overcome that incorrect market bias. For traders, strategy beats bias.
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