Have you ever been in front of the trading screen, knowing you should pull the trigger to either enter or exit, but find a reason not to? That is the situation Guy Bower calls ‘Turn Two at Eastern Creek.’
The reference is to the racing track in Sydney, where the first turn is ‘a very fast left-hander,’ whereas the second is ‘a slow and tight left hairpin,’ ‘the corner you’d talk about with the other guys in the pits between sessions,’ as Bower describes in ‘Of motorbikes and trading types,’ an essay included in ‘The Wiley Trading Guide’ (www.wiley.com).
Handle fear
Rewinding to his racing days, the author reminisces how the turn would at times psych him out. “I knew the spot at which I should be braking but often fear made me grab a handful of brakes 3 m to 5 m before it. It was something I would be aware of on the approach to Turn Two every lap. Sometimes I would nail it. Sometimes it would nail me,” he recounts.
His counsel to handle ‘fear’ is to change the focus and rationalise. “I could have, for example, thought ‘my overall lap time is improving therefore that little bit does not matter.’ In trading that’s like knowingly making a mistake and thinking ‘at least I came out of the day/week/month in profit.’”
Getting past fear, says Bower, requires awareness and repetition, not ignorance. “My Turn Two was far from perfect, but I was honest with myself and consciously worked on improvement.”
Education and repetition
The second parallel between trading and racing is ‘confidence,’ the author notes. An interesting finding from a survey he cites is that more than 80 per cent of people thought their driving skills were above average.
“Before taking my riding seriously, I thought I was a good rider – better than average at least. Looking back, I think I was closer to average,” reads his confession. “Some of my friends thought I was overdoing it when it came to attending riding courses. I disagreed.”
Why so? Because, as the skill increased, so did confidence, argues Bower. For, with more and more things becoming second nature, things that would previously be in the front of his mind became automatic. “The effect is a clearer head and faster times.”
So too with trading, education and repetition are very important, the author emphasises. He makes a case for trading simulators that can teach one to read volume and price action, and enable learning to happen through practice, practice, and more practice!
Importance of focus
Focus, the third similarity between trading and racing, reminds one that on a track, there is no time for thinking about anything other than what is ahead. “I would think of extra thoughts as extra weight, and weight slows you down,” cautions Bower.
As for focus in trading, it is about determining the right amount for the type of trading you do, he advises. “For position traders, checking markets once a day may be enough. For intraday traders, you need your eyes on the screen and no thinking about shopping, picking up the kids, the phone bill and so on.”
Set your goals
Goal-setting, the next parallel, is what can work in most pursuits, observes Bower. There is a lot of art in motorcycle riding, but there is also a lot science, and so breaking it down into a science and putting a plan together works, he adds.
“On practice days, for example, I would literally stick a note to my petrol tank detailing what I wanted to work on. Each session was different and I’d never make it too complex.” A sample list in the essay has three bullet-points, viz. ‘Relax. Wide view screen. Look past the guy in front.’
If you wonder if it is not a bit stupid to put notes on the petrol tank because, realistically, you don’t have time to sit there and read on your bike, the author explains that just the process of writing out the note and sticking it there made it worthwhile. “I could have just as easily put the note in my toolbox and it would still work as the issues were clear in my mind.”
Traders can likewise benefit from making small notes (with points such as, ‘relax, see the big picture, think ahead’) and stick them next to the PC, suggests Bower. “This is hardly a complete trading plan, but that’s not the point. The idea is to work on a few small issues at a time. Don’t overdo things – keep it simple. Then regularly change the note. If you’re day trading, perhaps have a new note every day. ‘Today I will focus on…’”
Embrace stress
A section on ‘dealing with stress’ speaks about ‘bad’ stress, evident as ‘punching holes in walls’ or ‘aggressive riding.’ If your stress is making you tense or grabbing the grips too hard, you will not be riding well, because good riding has a lot to do with fluidity and at times letting your body move with the bike, the author instructs.
The similarity in trading, he depicts, as stress turning into frustration that sees you making silly trades or holding positions when you shouldn’t. “In a day-trading context, it might mean pulling trades too quickly or loading up with your full allocation when the signals to do so are just not there.”
Good trading, according to Bower, is learning to read the market and letting it tell you how to position yourself. “To do this does not require elimination of stress, but a mindfulness of how stress may be affecting you.”
That is, embrace stress, rather than try eliminating it, he says. The essay makes a reference to ‘The Trading Athlete’ (by Murphy and Hirschhorn) for the analogy of driving through foggy weather. “Most of us in this situation would sit more upright and focus on the road ahead. We feel uncomfortable or stressed heading through heavy fog but that stress creates greater focus.” In sum, this is a situation where stress feeds your level of focus, and the more you focus the less chance there is of making mistakes, Bower outlines.
Mind clutter
To those who are thinking ‘too much,’ the author’s prescription is to deal with mind clutter, the internal dialogue that can get rather noisy, particularly when your P&L does not look the best.
Conceding that, at times, we tend to have destructive thoughts and focus unduly on the negatives, he offers a tip from racing, thus: “My approach with riding was to complete my analysis while off the bike and think of these things as little as possible while on a fast lap. Having too many things going on in your head will slow you down and increase the risk of bad decisions.”
Bower recommends ‘a great drill’ for day-trading, as follows: “Print out an intraday chart in the morning, mark your levels on it and map out what you would expect a bullish, bearish and neutral day to look like. With that you can build a plan for the day ahead depending on how the market plays out.”
Clarifying that the drill is not about forecasting the market but having you think through possible scenarios and subsequent actions before your mind is biased by a position you have, Bower avers that a properly planned day means making fewer decisions while in a trade and overall trading with more discipline.
The essay concludes with the statement that both trading and racing are pursuits in excellence, requiring focus, practice, and elimination of weaknesses. There are many things in trading that the author considers art, but the process involved in becoming successful, he says, is ‘a science because it follows a predetermined set of rules that you must create for yourself.’
Rich insights for serious traders.
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