Sep 4, 2011

Golf and the Art of Trading

Written by Katie Gomez

I would like to draw your attention to the similarities between success in golf and success in trading financial instruments. Mental specifics involved in properly executing a golf swing and shooting a low score are almost the same as they are in executing a trade, managing risk, and taking profits. If you allow yourself, you can take advantage of the mental training aspect of honing your golf game to significantly improve your trading results.

The Swing:

One of the more difficult aspects of executing a golf swing is understanding that the act of swinging a golf club to send a small white ball at an intended target is subconscious. What does that mean exactly? High level it means there are so many parts in motion the human brain simply can’t consciously control all of them at once. When the brain tries to control the varied aspects of the swing during the swing, disaster happens and you hit terrible shots. In order to swing the golf club well you have to give up that need to control your body. You have to ask your body to swing it the right way and hope that it is listening.

Bad Preparation:

Giving up control is not as easy as it might seem. Not only is the act of hitting the golf ball completely different from what people expect, high handicap golfers have terrible practice habits. These facts are well documented and researched by the PGA. Weekend golfers tend to get ready for a round of golf by hitting many balls at the range. This is called grooving a swing. After a little bit the ball starts to do the right thing and they are able to repeat this swing. However, as soon as they get to the golf course to play and keep score they become very frustrated when their tour-level range swing does not seem to ever come out on the golf course. Professionals practice to score. Instead of banging away with your driver for an hour like the amateur a professional has a specific practice routine which usually means spending the most time on the putting green where they score!

Fixing the Wrong Problem:

Finally, most high handicap golfer suffer from “Paralysis by Analysis”. They attempt to think their way through the golf swing focusing on the mechanics. Is my wrist hinged? Did my head move? Did I shift my weight laterally? This type of thinking is a kin to being stuck in quicksand. The more you think/struggle the more you get stuck.

The Solution:

If you want to score well in golf, and it is not easy, imitate what is done by professionals. They approach the game differently, they practice differently, and that is why they get results. We will discuss the solution more as we delve into the trading similarities.

Placing A Trade:

The act of placing a trade, means committing capital and getting your stock or option or ETF or whatever instrument you are trading and then hoping for the optimum result. That instant in which your finger presses the buy or short sell button is akin to swinging your golf club. Buying 200 shares of AAPL as it comes into a level of support and trying to play the bounce for 4 points is similar visually to driving a golf ball 290 yards down the middle of the fairway with draw spin. So how do the pro’s do it? In golf, the professionals see the shot and shot shape before they take a swing. They visualize very clearly what they want to take place. So just like a professional golfer if you want a good trade you have to visualize it. See yourself placing the trade and seeing the P/L and watch yourself taking profits. Once you place the trade you must come to terms with a simple fact. Actually you have no idea what will happen. Most amateur traders just don’t want to admit this simple fact. Nobody knows the future. So, just like the pro’s in golf you have to visualize the desired result but have confidence that if the desired result does not happen you will be able to recover.

Bad Trading Practice

There are two common camps of amateur traders when it comes to preparation. Both produce poor results. The first group practices by paper trading. They spend countless hours sitting in front of a computer playing the market without any real money at stake. Much like the range golfer the paper trading master gets pretty confident after seeing the paper profits pile up. Also, just like in golf the paper trader becomes frustrated quickly when paper results never translate to actual similar returns when real money is on the line. If you want to take the paper trading approach and apply professional golfing rules to it here is what you have to do. Practice losing. That’s right, practice losing. First know exactly what you are willing to lose on the trade, then get in front of your paper trading terminal and take your losses over and over and over again. This is like the professional golfer putting. Get good at getting out quick for a small loss. Forget winning trades when it comes to paper trading. This practice of losing small often is what will give you confidence when trades do not go your way. Taking small loses properly is where you as a trader score.

Trading Over Analysis

The second group of amateur traders has a hard time just pulling the trigger on a trade. To them all of the magic elements such as RSI, EPS, PE, SMA 200 and 50 crossing over and whatever other stuff they believe is predictive must take place. They pour over SEC filings and Blogs about this and that. This group of traders needs to believe that they have the “Right” set up. It is a very dangerous type of thinking because believing that you are correct makes it almost impossible to do the proper thing and reduce risk when the market goes against your analysis. Imagine if Tiger Woods could only hit the ball if it was nice out with no wind. It might work well on a simulator but in real life you have to be prepared for the uncomfortable. Professional traders try to avoid putting so many unnecessary burdens in front of their success. They can trade in either direction simply getting out of trades that don’t go their way until they catch the right wave and ride it to alpha town.

In Summary:

I like to keep things simple so I will boil it down to this. Visualize and practice. Vizualize the good result you want in a trade and practice over and over doing the right thing when the wrong thing happens. The wrong thing will happen a lot! If you have any doubts about the value of visualization and how it can help your trading Google “Jack Nicklaus Visualization”. Jack Nicklaus is the greatest champion in modern day sports. He did not get there by thinking about the mechanics of his golf swing.

Why Trade Ideas

You have seen me post videos of how I use Trade Ideas and how I place trades. You have seen my P/L. The best golf analogy for Trade Ideas is that it helps me with my course management. In a round of golf, many amateur golfers pick the wrong club and don’t know their distance to the pin or the hazards. Trade Ideas is like a golf GPS with caddy tips. I use it to find shapes of movements that appeal to my trade vizualization. I also use it to gauge strength and weakness much like a golfer might throw some grass into the air to see which way the wind is blowing. I use the OddsMaker like a driving range on steroids. I am able to practice my shots more efficiently as I am able to run through more practice rounds than is possible if I was just paper trading. I trade professionally and if you follow these tips so can you!