Trading is seen by many as a game (although it really isn't) and most games have similar characteristics.
In a game, two sides compete and there can only be one winner. In every game, there are people or teams that have a history of excellence performance. For example, in athletics, Usain Bolt of Jamaica was a good example of an expert in the 100 meter race. The same is true in swimming where Michael Phelps has won several Olympics games. In soccer, a team like Manchester United has an excellent track record in winning.
However, in sports, performance is not always on a straight line. It fluctuates. For example, although Manchester United is one of the strongest teams in Europe, in the recent past has won almost nothing.
All this is true when it comes to investing and trading.
Some examples in trading
This is a story we hear so often. Bill Ackman, founder of hedge fund, Pershing Square Capital, grew his assets under management to about $20 billion. Today, his hedge fund has less than $10 billion in assets. Warren Buffet himself, despite being recognized as one of the greatest investors of all time, has made some bad investments that have cost him a lot of money.
All this does not make these investors weak. Like sport, they’ve had their best moments and and occasionally have moments of decline. In a similar way, you will have highs and lows and by following sports principles, you can become a better trader.
Anyway...if you ever need help not giving up after a big loss, you can find some advice here.
Sport principles translatable to trading
Don't gloat too much
First, sport teams and athletes take their wins as a launchpad for future success. For example, when you are an athlete and you win a match, the easiest thing for you to do would be complacency. You can rest and believe that you are the best. This is wrong.
As you rest, the people you defeated are adding more effort to beat you the next time you meet. Instead, you should add more effort.
As a trader, whenever you have wins, it is perfectly okay to celebrate them. However, you should celebrate for a short period and then focus your energy on future wins.
» Related: How to avoid overconfidence in trading
Learn from your mistakes
Second, sports team take losses as motivation for future success. Athletes make money when they win. Those who don’t win championships don’t make anything. Therefore, they understand that failing to win can have serious implications on their careers. Consequently, whenever they lose, they take it as an opportunity to further improve their skills.
As a trader, you should always take your losses as a lesson. Instead of being discouraged, you should add more effort to win next time.
Using a trading journal can be critical in helping you with this. Keeping track of all of your trades, and why you decided to open one, is most useful when it comes to analyzing a winning strategy or a loss.
Isn't this the same thing that athletes do when they analyze their past performance?
» Related: How to Deal With Huge Trading Losses?
Practice and train yourself. Always
Third, exercise is very important. In fact, no team in history has become a success story. Athletes like Michael Phelps and Usain Bolt spent tens of hours every day practicing. They spend hours watching videos of their competitors and countless amount of time with their coaches.
This is a vital lesson for all traders. It is important for you to spend time researching and practicing on your trades. If you are a quant trader, you should equally spend a lot of time developing strategies and algorithms.
If you want to try a new asset, stock or strategy, you have to spend time to study it and put it into practice (preferably in a demo accout). Doing all this will make you a better trader.
Similar situation can give different results
Another key lesson that traders can learn from sports is that some situations can produce different results. For example, in soccer, a team can decide to use the same format that won a previous match and hope that it will win the next match. We have seen this situation happening many times before.
The same situation happens in day trading. At times, you can see a sure price action pattern and expect that the price will do as it did before. For example, you can place a buy trade since a currency pair has formed a bullish flag pattern only for the price to decline sharply.
Therefore, the main lesson to learn here is on the need for risk management. No matter how sure you are about a situation, there is always a possibility that the opposite will happen.
Know your opponent
Another important thing you need to learn is on about your opponent. To be successful in any sport, you need to ensure that you know your opponent well. That’s why many players spend time watching how their opponents are playing.
The same applies to the market! Here, you should ensure that you have a good understanding about the specific asset.
Winning and losing streak
Meanwhile, in sports, we have seen many good player or teams underperform for a long time. For example, before he won the Masters in 2019, Tiger Woods spent a few years without winning a title. But he did not give up.
Similarly, in the market, we have seen many good investors or traders underperform. For example, a few years ago, Bill Ackman lost money for three straight years (yeah, We love to use him as a model). At some point, he lost $4.4 billion in a single investment.
In the past few years, however, he has emerged as one of the best performers in the market. In 2022, he invested $27 million and turned it to $2 billion in less than a month.
If you run a trading floor, you can learn a thing or two about staffing from sports team (even the teamwork itself). Sports team that do well have the best talent. They spend vast amount of money creating a team. A look at teams that win shows that they always do the best that they can to have the best talent.
As a trading floor operator, you should always ensure that you have the best traders.
External useful Resources
- 10 similarities between sports and futures trading - PositiveEquity