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August 25, 2013


Our American Pastime as a Teacher for Trading


Growing up and playing the sport through high school and college taught great lessons about process vs. outcome. Baseball is a unique sport in that you constantly deal with failure more than success as a batter.


For those not familiar with the sport a .300 average for a season is considered a great average to maintain. This means, on average, a batter will fail 7 out of 10 times and still be considered very successful at the plate. The key phrase in the last sentence was “on average”. So if this is the season average a player may have hot streaks of 5 for 10 and cold streaks of 1 for 10 or even 0 for 10.


Going through this personally, it can take an enormous mental toll when the cold streaks come around. So with so much failure to deal with how does a player survive the emotional roller coaster of cold streaks and hot streaks?


The answer is focusing on the proven process of hitting, not the outcome. A hitter can do everything in his power correct at the plate and still might not get a hit. He can wait for his pitch, put a great swing on it and connect with the barrel of the bat and still may line out to the shortstop.


Focusing on the outcome, which he has no control, this would be viewed as a failure; he didn’t get a hit. Focusing on the process, which he does have control, this is a success; he followed his ingrained proven process to the best of his ability.


The best players in history have always focused on what they can control at the plate, their proven approach and swing, and then let whatever was going to happen, happen. They know that over the course of a season if they focus on their proven processes, correct and learn from mistakes, and then just let go and play, then they will come out ahead with a good to great average.


This sounds pretty simple and easy right? Not at all, for a couple of reasons.


First the process needs to be proven and totally accepted by the batter. This means continuous work has to be put in prior to getting to the plate that gives a hitter confidence in the process. A batter cannot be thinking and questioning his swing at the plate and also focus on the pitch. Not many will do this back end work.


Second, it takes emotional and mental discipline and work to keep focusing on the controllable present moment when everyone else judges, talks and focuses on the outcome. As a player there are times during hot streaks when you almost cannot help to start scheming how many hits to get to a certain average, or during colds streaks where you worry if you continue to go hitless how bad your average will be.


As a player it is tough but necessary to continually come back to focusing on the proven process and take one at bat at a time, focusing on the present moment. No more, no less. Sound familiar to trading?

In trading we work to follow the same path as a successful hitter would in baseball.


First, we do the extensive work in researching, building and emotionally accepting a proven process that has worked robustly in past markets. This work includes ingraining this process to be second nature in order to execute in the present moment without questioning or worrying about outcome. This is like the batter doing the necessary research and work on his swing based on what he has seen work for players in the past and then hitting enough balls in practice to ingrain the swing pattern and belief in it.


Second, we execute the process to the current market environment one trade at a time like the batter would focus at the plate on one pitch at a time.


Sounds simple and easy so why do the statistics show that only a fraction of traders are consistently profitable?  One, they don’t do the necessary work on the back end to prepare themselves with a proven process that they totally accept psychologically and emotionally. Two, they don’t do the work while implementing and executing the process of staying focused on the process only and not get distracted by results.


Surprisingly to a lot of people the second part of the equation is much harder then the first. Just like a ballplayer, as a trader and a human, we sometimes get caught up in the results which affects our execution of the process. Just like a hitter cannot worry about getting a hit and focus on the pitch at the same time, a trader cannot worry about if a trade will work and correctly execute his plan at the same time.


Coming from a baseball background it probably isn’t an accident we gravitated to the process of trading.  We go through the same mental games as a hitter with hot streaks and cold streaks. We see our key is not to beat ourselves up when these results driven thoughts come up ie:“What if this trade doesn’t work” “If I make this much on this trade than I will be up X% for the year” , but to understand that they will come and to have a routine to get back to focusing on the process.


We do this through meditation, yoga, and physical exercise and have seen several other successful traders use other methods, but they all train to be in the present moment vs. worrying about the future.


That is why we view trading as a practice and process, not as a destination. Thankfully the work and growth is never done and will continue to subsist as long as we are trading. We appreciate any feedback or comments.


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