subject: Trade The Markets Better - With Basketball? [print this page] How in the world could watching basketball make you a better stock, futures, or FOREX trader? To get something from this analogy you must first be convinced that your mindset is the biggest part of trading success. After working with hundreds of traders I have come to realize without a doubt the truth of that statement. The right frame of mind is HUGE when it comes to trading!
So what does that have to do with the game of basketball? Basketball is a game of runs. The team that gets into the most runs wins. It is that simple. Similarly with trading, your career will be a game of runs too. Hopefully more runs in your favor than runs going the other way. You have to see the run against you and stop it as quickly as possible.
In basketball, if you stay in a funk (missing shots, committing fouls etc) while the other team is on a run you had better get it corrected quickly, or you will be out of the game. The closer you are toward the end of the game the more important corrections become. One or two mistakes could cost you the game.
In trading you can allow a few small runs against you, but the long runs need to be in your favor. The closer you are to the end of the trading day, the more important consistency becomes (if you are day trading - if you take longer term trades, whenever the end of the time frame where your trade happens, runs become critical). One or two false moves (mistakes) could cost you the day.
Many basketball games are decided in the first quarter. A team gets a 10 or 20 point lead and never lets the other team back in the game.
In trading, I like the early morning action. Before the US markets open or 30 minutes or so after. If I can get up in the count early, I can take the rest of the day off, or only take more trades if they really look exceptional.
If a team is up big in basketball, they may only take the easy shots. They don't have to be in a hurry to get a shot off (at least until the shot clock runs out). The trailing team might get anxious and try to take shots they normally would not take. They may need to hit some 3 pointers to get back in the game. The pressure is on, and the players may not think as clearly as the relaxed team in front.
Traders can find themselves in a similar situation. They fall behind in the count and think they need to take trades that are not really that great to get even again.
Basketball teams have to endure long seasons. If they lose a game that is OK, just come back and be ready to play for the next one.
Traders should have the same mindset. No one trade or even series of trades should make or break your career. While a basketball team might be considered great if they consistently hit 50 percent of their shots, as traders we really need to hit 60 percent or more of our trades. If our money management is good, and we cut off the runs against us quickly, and let our winning runs ride, we may be able to get by with hitting just 50 percent of the time.
Let your winners run and cut the losing runs short, like a good basketball team, and you should have a great career as a trader!
