Friday, March 27, 2015

Making Your Trading Fist: Five Fingers of Preparation

Coach K has it right: a finger by itself is far less powerful than five fingers joined into a fist.  When a championship basketball team prepares for a game, it doesn't just work on one thing today, another tomorrow, and focus on something else another day.  Rather, it works on fundamental skills and strategies every single day of practice.  That way, each finger of preparation makes a fist of preparation for success.  Coaches know that if a team can't fire on all cylinders in practice, they won't be prepared to give their all at game time.

During my time at Duke, one of the preparation drills for the basketball team was the requirement to make 10 consecutive free throws at the end of practice.  In other words, you couldn't go to the locker room, take your nice hot shower, and get back to your dorm room until you made 10 consecutive shots from the line.  Think about that:  you're tired, sweaty, just wanting to get into that shower--and now you have to concentrate and nail 10 in a row.  Imagine the frustration of making five and clanging the sixth--and then starting over.  Imagine the frustration of seeing your teammates drain their 10th shot and you're still struggling on the line.  

It plays with your head.

And that was the purpose of the drill:  If you could pull it together and make those shots in a challenging practice situation, you'd be better prepared to make that key free throw down the stretch in the heat of a tournament game.  

*That* is preparation:  placing yourself in realistic, challenging situations and training yourself to perform at your highest.  Preparation is not simply writing in a journal or scanning a bunch of charts or reviewing various pieces of research.  Each one of those things is a finger.  Preparation joins the fingers into a fist through full-throttle practice.

Imagine that, after every day, week, or month of poor trading in markets, you had to replay those periods one time unit at a time, make new decisions, and keep replaying those markets until you made the right decisions for the right reasons.  You could not resume real time trading until you successfully relived the periods of bad trading and--in realistic simulation--corrected your errors.

Such an exercise would force you to stay in the right mindset; focus on the right pieces of information; follow the right trading rules; make the right decisions; and manage the positions the right way.  It would join those five fingers of preparation into a practice fist.  

It wouldn't be fun, but it would be a powerful way to ensure that bad trading doesn't turn into bad habits.

Further Reading:  NCAA and Trading Upsets