Sunday, July 17, 2011

Sports, Trading, and the Psychology of Improvement.

Trading is a lot like athletics. All good traders and all good athletes are constantly trying to improve and perfect their game. If you are not working on getting better than by default you are either getting worse or stagnating at best. And if you stagnate long enough eventually the game will surpass you.

"In the confrontation between the stream and the rock, the stream always wins - not through strength but by perseverance" - H. Jackson Brown

Sports change. Athletes change. The game gets faster and harder, players get younger and stronger. Markets and participants change in the same way.

Jerry Rice was arguably the greatest receiver of all time and his off season workout routines were the stuff of legend. Nobody worked harder than Jerry at becoming better. Michael Jordan is the greatest basketball player of all time thanks in large part to his "Breakfast Club" workouts. All great players know that it takes hard work to become great.

"Everybody has talent, but ability takes hard work" - Michael Jordan

Lately I have been working on a complete overhaul in my trading. The reason I am doing this is not because what I have been doing my entire career suddenly stopped working. It is because I think I can become better. It is the constant quest for improvement.

"The principle is competing against yourself. It's about self-improvement, about being better than you were the day before" - Steve Young

For my entire career I have been a fader. Either fading what I perceive to be an extreme or fading a pullback in the direction of the dominant trend. I have become adapt at identifying potential turning points in the market. It is not uncommon for one of the TS #'s to be the high or low of a move. So while I can consistently get the turns I am missing out on a lot of the "middle" of the market. The part that a lot of traders like to call the sweet spot of the trade.

You often hear traders say "I don't care about picking the top or the bottom - I just want to capture the meat of the move" or something to that effect. Often times with my style of trading I miss out on a lot of the meat of the move.

So I have been working on incorporating momentum into my trading.

So far I am not seeing the results I expect. That's okay. I am going to keep working on it. Eventually it will pay off. Change doesn't happen over night. Rome wasn't built in a day. In the long run I am confident that these changes I am incorporating will only make me a better trader.

"If you do the work you get rewarded. There are no shortcuts in life" - Michael Jordan

Why did Tiger Woods change his swing after he had just won the 1997 Masters by a record 12 shots? To get better of course. But what happened first was he got "worse" or so it seemed. He only won a single tournament in 1998 and appeared to be in a serious slump. Change, however, takes time.

In 1999 Tiger won 8 tournaments including the PGA Championship. He ended 1999 winning the last 4 tournaments of the season. Then in 2000 he won his first two starts making it six wins in a row. In 2000 he went on to dominate the sport winning three Majors: the U.S. Open, the British Open, and the PGA Championship. And he placed 5th in the Masters. He also won the Canadian Open (something the great Jack Nicklaus never did). He ended the 2000 season with 9 PGA Tour wins including 3 of the 4 Majors.

The swing changes appeared to be paying off!

In 2001 the dominance continued. He won the Masters, effectively completing what is now known as the "Tiger Slam". He finished the 2001 season with 5 PGA Tour wins. In 2002 he won 5 PGA Tour events including two Majors: The Masters and the U.S. Open.

But then in 2003 he "only" won 5 PGA Tour events but no Majors. In 2004 he only won 1 PGA Tour event but no Majors. What was the problem and why was Woods "slumping" again?

It just so happened he was in the middle of another swing overhaul!

What happened next? Tiger went on to dominate the sport once again. In 2005 he won 6 PGA Tour events including 2 Majors. In 2006 he won 8 PGA Tour events including 2 Majors. In 2007 he won 7 PGA Tour events including 1 Major and then in 2008 he won 4 PGA Tour events including 1 Major. In 2009 he won 6 PGA Tour events but no Majors then in late 2009 we all know what happened.

In 2010 he didn't win a single tournament and is win-less in 2011 as well missing tournaments and not playing in Major championships for the first time. Apparently he is injured and is undergoing more swing changes. He has always said his goal was to beat Jack Nicklaus' 18 career Majors. Tiger has 5 wins to go. We'll see what happens.

"The will to win is important, but the will to prepare is vital" - Joe Paterno

When Tiger was in the middle of one of his major swing overhauls he didn't expect the results to be immediate. The media constantly questioned him as to what was "wrong" but he knew what he was doing. In fact most people thought he was crazy for changing up a swing that had won the Masters by 12 strokes. When he started his second swing overhaul there were even more naysayers.

Tiger however had formulated a plan and was working through it. He could see the bit by bit progress he was making when the results to the outside world appeared to be negative. When he was sucking balls in tournament play he would say things like "Well I'm really happy with the way I'm swinging the club". Some people in the media accused him of being delusional. Tiger had a vision for the end result before anybody else could see it. He knew that positive change would surely come with time and perseverance.

I feel the same way with the overhaul I am making in my trading.

Yoig Berra once said: "Slump? I ain't in no slump. I just ain't hitting!"

That's the way I feel.

Adapt or die!


Andrew Menaker PhD said...

Great post. I especially like the part about competing against yourself.

There is much that traders can learn from athletes. As a psychologist, my background was originally in sports psychology, and it's still a major influence on me. If I wasn't trading and working with traders, I'd be working with athletes.

The following is from the USOC Sport Psychology Top Ten List:

1. Mental training can’t replace physical training and talent.
2. Physical training and physical ability isn’t enough to succeed consistently.
3. A strong mind may not win you an Olympic medal, but a weak mind will lose you one.
4. Coaches frequently don’t know what their athletes are thinking.
5. Thoughts impact behavior. Consistency of thinking = consistency of behavior.
6. Coaches often have a different view of changing technical mistakes vs. mental mistakes.
7. Coaches must be involved in the mental training process.
8. Sometimes it is ok to force athletes to take the time to do mental training.
9. Like any other skill, mental skills need to be measured in order to maximize performance of those skills.
10. Coaches need to think about their own mental skills.

Andrew Menaker, PhD

I-Man said...

Excellent post, man.

Just great!

The JoePa quote resonated the most for the I...

One must feel worth the prep time, the work before/after the bell rings... it is the true garden bed of consistent success.

Without the work, and the confidence it brings, you're just another set of eyes watching blinking lights, stressing over what to do next.