Saturday, 7 March 2015

There are many analogies between catching waves and trading well

I am a keen body surfer. Always when I am in the surf I think of analogies between catching waves and trading well. Further, when I am at my desk, I find that thinking about the process of catching waves helps put me in the right frame of mind to trade well.

Some analogies...

Watch and wait for a good wave. Enjoy the waiting, the floating and daydreaming and banter with your companions. Watch and wait for a trading edge. Accept that watching and waiting is part of the trading process, and find a way to enjoy or be productive in that time.

The ocean provides an endless supply of good waves. There will always be another good wave. The market provides an endless supply of good trading opportunities. There will always be another good trading opportunity.

Get off a bad or weak wave early, forget it, and watch for the next good wave. Cut a losing or under performing trade quickly, forget it, and watch for the next trading edge.

Riding the good waves as far as I can is instinctive, but watching my young children I know that it wasn't always so, the instinct only developed through many hours of practice. Letting winning trades run can also become instinctive, and requires determined practice.

Use and respond to your senses. View your charts with your eyes only, don't let your emotion and expectations influence your analysis.

Once the process of catching waves has been learned, it becomes instinctive, easy, and blissful - you are "in the zone". Following a proven trading plan that you have developed to suit your personality also puts you "in the zone".

Waves that look good before you jump aboard can often go wrong, or fizzle out, or hurt you. Managing losing trades must be part of any trading plan.

If you get your body position wrong on a good wave, you can get hurt. If your trading plan has good trading edges but gets position sizing wrong, you will eventually wipe out.
The ocean and surf are unpredictable. You must respect their inherent danger. Likewise the markets. Respect for its uncertainty must be part of your trading plan.