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Dr. Doug: Trading Is Not a Sport

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Video: Market Coach Doug Hirschhorn discusses how trading really is not like sports, in spite of the fact that many banks and hedge funds seem to perpetuate the idea.

When things get tough, traders often begin to think like athletes. It makes perfect sense — for decades Wall Street banks and hedge funds endorsed the idea that former athletes would make better traders because of the assumed similarities between sports and the markets.

As a market coach, I spend my days digging into the minds of the greatest traders on Wall Street. My job is to improve their performance. Often times, the way I do that is to get them to stop thinking like an athlete. Here are four reasons why trading and sports are not alike:

  1. In sports, before you take a swing, you don’t think to yourself, "What do I do if I strike out?" Or "What if I hit my tee shot in the water?" In trading, you have to think that way. You have to think that before every trade you make. It’s what the top traders call great risk management.
  2. In sports, if you want to improve a physical skill, you target that skill and work on it. And usually, more effort will give you better results. In trading, that’s not how it works. In fact, more work often leads to things like over-trading, second guessing and worse results.
  3. In sports, the rules are consistent. They’re predictable. They never change. It’s very much an if/then design. But in trading, the rules change constantly. What made money on one trade may not make money on the next. As a trader, you must constantly adapt to the new rules of the markets are for each and every trade.
  4. In many sports, you have to deal with a defense that reacts to what you do and tries to limit your success. While it may feel that the markets are out to get you, the fact is, they’re not. They don’t know or even care about your trades. You just have to find your edge, do your thing, and leave the paying up to the market.

Think better, invest smarter.