For most of my life I have been involved in competitive sports. When I was in my 20’s, I trained for and even won a couple of competitive bodybuilding events (hard to believe when looking at my current sub-170 lbs. 5’11” frame!). Later, in my 30’s, I became interested in cycling, and went on to compete in both mountain bike and road bike events. After 2 decades of bicycle racing, I decided to try something different this past summer by entering into my first triathlon (swim, bike, run). Prior to training for that event, I had never practiced running or swimming to any significant degree. Of the two, I knew that swimming would be the most difficult challenge given the high degree of technique and technical ability involved in that sport.
It occurred to me that there are quite a few similarities between putting together a trading plan for profitable investing, and putting together training plan for success in athletic event. This week I’d like to pass on a few thoughts regarding the discipline of creating a trading strategy using technical analysis, as related to training for an athletic event.
At many sporting events, particularly at a triathlon, there are people who show up without much training under their belts. They are there for the experience, and for the social side of the event. Now don’t get me wrong; just showing up for a tri is something to be admired! It’s better than sitting on the couch – so more power to these individuals. It’s a real pleasure to see individuals from all walks of life get out there and get physical.
My own approach to sports is to compete with the idea of achieving a specific objective – usually to achieve a certain “placing” level – for example, a top 3, top 10, or top quartile finish. Given that I was new to the world of triathlons (but an experienced cyclist) I decided that I would like to finish at least in the top half of my age/sex category. In order to achieve this objective, I would develop a training plan involving specific commitments and sacrifices. I had to step out of my comfort zone as a cyclist and begin running regularly and take swimming lessons. I had to forgo certain foods that I love in order to ensure maximum output from my body, and minimize my body fat levels. As motivational speaker Bob Proctor once said, “First decide what you want, and then decide what you will give up in order to get what you want.”
Investors must follow a similar approach to our trading strategy if we wish to be successful. Unlike a triathlon, you can’t “just show up for the experience” when trading. At a sporting event, every competitor usually gains some level of growth or satisfaction from the event. Not so with the capital markets – there are only winners and losers in the world of trading. Losing money on the stock market rarely leaves us with any feeling of accomplishment or satisfaction. As Oscar Wilde once said, “Experience is simply the name we give our mistakes”!
To succeed in trading, we must develop competence in a number of skills to prevent trading losses and earn positive returns. The skills that technical analysts use include:
- Trend & formation identification,
- Knowledge of cycles that may influence these trends (e.g. seasonal influences or the presidential cycle)
- Understanding intermarket relationships (i.e. how various asset classes or sectors move relative to other sectors),
- Broad market “health” indications such as breadth and sentiment,
- Refining factors such as momentum and volume interpretation.
Like learning to swim and experiencing the aches and pains associated with hard cycling or running, learning these technical analysis trading skills involves a certain amount of time, effort and sacrifice. If you will pardon a plug, my book Sideways was written to help reduce the pain and time involved in that learning curve. Once the skills are acquired and rules involving these skills have developed into a plan, we are ready to compete with other traders on the capital markets.
Another interesting similarity between training and trading is the necessity of applying mental discipline and the ability to control ones emotions. When approaching a race or competitive event, there is a certain amount of fear or anxiety that one must overcome. This is similar to the anxiety one feels before “pulling the trigger” when buying or selling a security. Training for a sport is hard work, and sometimes a little discouraging as inevitable setbacks occur. Trading discipline is also hard work. Following your trading system sometimes can be as much an act of faith as it is an application of learned skills.
For the year 2012, please continue to join me on this blog where I’ll continue to provide weekly commentary on the markets and interesting sector trading opportunities. SmartBounce began 2 years ago and is now read by thousands of individuals throughout North America and the world. I thank you for your interest in the site, and I hope that 2012 will be a prosperous and happy one for you and your family.
BTW: For what it’s worth, I placed in the top third in my category in the triathlon.
I just would like to thankyou , for the insightful information you have been providing me.
Sometimes, I think you’re somewhat psychic in the way you see the market.
If I have one complaint, it would be that, you should write more than once a week…………Once again thankyou and keep up the good work……Romie
Thanks so much Romie. I wish I was psychic!
I may step my writings up to more than once a week, but at this time its the most I can dedicate my time to. Hopefully, its quality, not quantity that matters to readers.
All the best in 2012.
I am grateful for your writing, find it very educational.
Good health and happy New Year!!