Saturday, May 03, 2008

Trading Like a Sniper: Blending Aggression and Self-Control

In my recent post, I outlined how a trader's very achievement motivation can lead to "pressing": trying so hard to make trades happen that trading plans and rules are abandoned. This often happens when traders become frustrated with losses or slow markets and try to make up for the lack of results by sizing positions too aggressively or by taking too many positions. Traders press when they feel pressure, whether for profits, for action, or to achieve competitive advantage over other traders.

The result is a loss of self-control, as aggressiveness takes over and judgment takes a back seat. Successful trading may be discretionary or system-based, but it should always be rule-governed: controlled by basic considerations of risk management and opportunity. Indeed, this might be an apt definition of poor trading: when the need to trade overwhelms the need to preserve and add to capital.

One of my favorite posters in my office is of a military sniper in the field, peering out from ground cover. The caption beneath the picture reads, "The sniper's greatest weapon is a sharply honed intellect. He combines a mastery of stealth, situational awareness, ballistics and precision shooting skills into one of the most lethal weapon systems to ever strike fear into the enemy."

If the sniper became too aggressive and excessively bored with sitting in the field waiting for the right shot, he might leap from his cover and begin spraying the enemy with fire. Most of the shots would probably go wild, and the out-of-control sniper would quickly be located and mowed down.

No, the sniper waits for the ideal shot: "stealth" and "situational awareness" are essential tools of the trade. Being a sniper means combining aggression with exquisite self-control and judgment. It is controlled aggression.

Over the years, I've learned to trade like a sniper by not placing one trade after another in rapid succession. When a trade is concluded, I go flat and wait for a fresh setup. During the waiting time, I refresh my "situational awareness" (assessment of market conditions, my own condition), and return to my basic trading rules.

The idea is to trade only when I have an unobstructed view of the target. Everything else is waiting and preparing, staying low in a defensive posture. It's the time between those shots at the target that provide the self-control. It is difficult to press if you take the time to reassess, reload, and return to cover after an errant shot. With repetition, that reassessment and reloading become automatic: your default mode becomes one of self-control.

Plan. Trade. Reassess plan. Trade: It's a rhythm that combines the best of achievement motivation and aggression with the best of judgment and forethought. It's a beautiful feeling to plan one good trade, execute it to perfection, and then sit back and wait for the next opportunity. Any performance skill, honed and executed with precision, is a kind of work of art. I think the best snipers understand that.


Bridging Hot and Cold Emotional States in Trading

Three Steps for Breaking Out of Frustration