Being a trader is like being a boxer; you get beaten from pillar to post, burn out after 36 minutes of work and finish your day with a headache.…Just kidding!
Although those points may be true for some people, there are actually many real similarities between being a trader and being any sort of athlete.
In this article I have analysed some parallels between boxing and trading. I think there are certainly a few reminders or tips in there that we should all bear in mind when we step into the ring to take on the markets.
1. Once the boxer steps in the ring, he can only rely on himself
The boxer must be confident in his own abilities and independent in his actions. Although he relies on a team to train with, once he steps between the ropes he can only rely on himself.
This is similar to a trader, as you can have all the information and resources in the world, but ultimately when it comes time to trade you can only rely on yourself.
Make sure you establish a sense of independence and don’t rely on other people’s analysis to plan your trades; in the end it is only you sat at your computer opening and closing them.
2. A boxer must practice patience in their attack
If a boxer enters a ring with all guns blazing, they are likely to get caught with a counter-attack as they leave themselves exposed. Throwing a punch means taking a risk; if the punch lands, the reward is great, but once it is thrown the boxer is exposed and not defending that side.
The boxer must practise patience and only throw punches strategically, to take advantage of opportunities or to set up an attack.
In trading, a similar concept can be followed. Going into the market ‘all guns blazing’ means you will be overtrading. If you overtrade, you are constantly exposed to adverse swings in the market. If you plan your trades strategically and practise patience, you will live to trade another day even when the market is against you.
Sometimes you come up against a stronger opponent and you can’t always win; this is why discipline will guide you and help you weather the storm.
3. A boxer must be able to adapt to the opponent’s actions and have a plan B, C, D etc.
The boxer will enter the ring knowing what to expect from their opponent, however they have no way of knowing what the opponent has done in preparation; what their expectations are from the fight and how they expect to weather the storm.
This means the boxer must be able to adapt during the fight and have a back-up plan in any situation to ensure they do not end up lost or stuck without knowing what to do.
In trading, you must also have a contingency plan and an understanding of a range of different market types. The markets can be very unpredictable and will not always display activity that you expect or even recognise. You must know how to deal with these situations; part of this is developed through experience, whilst the rest is built up in your trade preparation – making sure you have a clear plan for any turn in the market.
4. A good boxer understands a fight is already won or lost in the training camp
This is an old maxim in boxing and is very true. The boxer who works harder in training and is willing to put in the most hours, be meticulous in their preparation and ‘live the life’ of a boxer is going to be the one that succeeds and develops quicker.
Traders often neglect this point but should really adopt this principle. Since money is involved, we seem to be too eager to rush into live trading when we understand a few basic fundamentals of trading. Instead, we should spend more time developing ourselves and learning the ropes; being willing to work harder than anyone else and ‘live the life’ of a trader – meaning healthy living, no distractions and high levels of discipline.
This point also does not end when you finally start trading live – constant development and learning is a must in trading if you want to stay ahead of the crowd and be part of the profitable minority.
5. A boxer must control their emotions to remain calm and composed
A boxing match will create a wide range of extreme emotions and high-pressure situations for a boxer, starting with the preparation and build-up to the fight, to the actual fight itself.
In order to stay focused a boxer must remain calm and composed – being careful not to ‘see red’ or get too overexcited or overeager, which can cloud judgement and lead to the gameplan being thrown out of the window.
It is suggested that 80% of trading is psychological. It is important to remain emotionally neutral in the market – not letting the greed/fear complex, overconfidence or insecurities set in.
If most of the preparation is done in the build up to the trade (see point 4) then the trader should trust the ‘gameplan’ and not allow emotions to cloud judgement and lead to overtrading or poor decision making.
8. A boxer understands defensive techniques to protect themselves against attacks
Although being on the attack is the fun part of boxing, a good boxer will not fall into the trap of forgetting their defence. Sometimes the opponent is also a good attacking boxer and it will be necessary for the boxer to take on a defensive approach to protect themselves until it is the right time for them to attack again (see point 2).
This means that time in preparation and planning must be dedicated to defence as well as attack.
Many traders are so focused on making big returns that they make learning trade setups their primary concern. However, good traders spend time on risk management and ‘protecting’ themselves.
This involves trade management, money management and position sizing, as well as strategies for what to do when the market is not performing how you would want. Scaling back and using smaller position sizes, as well as drip feeding your trade size into the market can be used as a more defensive approach.
Some of the best traders in the world are able to take a negative success rate on their trades and still make profit overall due to good trade management and a focus on risk levels.
7. A boxer relies upon consistent routines to bring the best out of themselves
This is the Rocky montage moment! Routines are necessary to maintain a consistent lifestyle that leads to consistent results. As people, we are made up of the routines we follow in our daily life; even things you don’t consider as routines are still likely to be derived from a particular routine you follow.
Boxers understand this and will do certain things at certain times of the day, follow strict schedules and some even follow superstitious rituals.
A trader should follow this same principle of having strict routines in their day. This includes: keeping the same chart and workspace setup, trading at consistent times of the day, exercising and eating at specific times every day and even getting a regular amount of sleep.
It is even possible to develop new routines to reach desired responses (did you know that a routine can become a habit, on average, after 66 days?) The results from improved daily routines are astronomical.
Just don’t go waking up in the middle of the night and drinking raw eggs ala Rocky just yet.