Nick McDonald 's Opinion

A markets and trading columnist for the NZ Herald

Nick McDonald: Trading lessons from the America's Cup

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Photo / Brett Phibbs
Photo / Brett Phibbs

There are a lot of similarities between trading and sport and I love using them as analogies to illustrate trading lessons. Golf is a clear favourite of mine for comparison while basketball, rugby, motorsport and football also make regular appearances in my commentary.

One that has never appeared before today is sailing.

I must state that I am an amateur-armchair supporter of the sport. I do not even qualify as a professional-armchair supporter since I only started watching toward the end of the Americas Cup to celebrate with the rest of the country when we crossed the finished line.

Unfortunately, we did not get to celebrate that victory but there are almost always some lessons that come from tough times. In this case, some lessons for traders from the way both teams performed.

Please forgive my lack of sailing knowledge, but here are a few things I picked up from observing the elite sailing teams and how their mind set and skills compare to trading the markets.

Flawless Execution is Crucial

Let's think of this concept of 'flawless execution' of a task firstly in regards to Oracle's performance on the water. If they had focused on the result when they were down 8-1 how do you think they would have fared? What if their entire focus was on the enormity of the task instead of doing the task well? It would be easy to give up right then and there and perhaps other teams would have. But Oracle pushed on and they performed. They gave it everything, they flawlessly executed the task at hand and they won.

Traders who lose 8 trades in a row feel a lot of pain. It hurts both mentally and emotionally not to mention financially. But sometimes a trader can flawlessly execute a good plan and it just does not work out. That might mean the plan needs a tinker - like the Oracle boat needed, but it rarely means they need to completely rewrite the plan (depending on the skill level of the trader and the quality of the plan).

It does mean they need to focus on the process, the flawless execution of their trading plan in order to keep emotions in check which start to get magnified if a trader focuses on the result - 8 losers in a row.

They need to focus on making the plan better to achieve and maximise the desired results. If they focus on current/recent/past results alone the pain and distraction is often too great to come back from.

Winning is very important to sportspeople (and traders), but if they have given it absolutely everything they could give, left nothing on the table, flawlessly executed their plan and still did not win, in my opinion they are definitely not losers.

Traders cannot possibly win on every single trade, it's a non-existent scenario that amateur traders strive for and professionals accept will never happen. It's not about been right or wrong; it's about having a proven strategy, the competence to flawlessly execute it and then flawlessly executing that strategy.

Everything I am told from the experts is that Barker and his team executed a flawless race in that final race. They did all they could, they sailed the perfect race the way they'd decided they needed to sail in order to have a chance of winning the cup. That's what professionals do. They have a process, they practice it, they learn from mistakes and on game day, they go out there to execute the plan flawlessly. The best traders follow this exact same principle and yet...

Sometimes they still lose...

Sometimes sports people do not execute flawlessly and they lose because of it (think All Blacks in Rugby World Cups prior to 2011). Other times, they do flawlessly execute and they still lose simply because they lost to a better team.

Or in the case of trading, the probabilities just dictate that even if you win more than you lose in the long term, sometimes you just need to accept that you are still going to lose in the short term.

It's part and parcel of the process of trading and if people don't like that, they should not be traders. Team NZ showed us this in the final race, tough as it may be, they gave it their all and did their best. What more can an individual possibly ask of themselves? If you give it everything and don't win, are you really a loser?

Professional traders lose money often. The best however never really lose, they learn. They learn from their losses, tweak slightly rather than completely change their plan and keep on striving for perfection.

Luck has little to do with it

Was the time limit imposed on ETNZ bad luck? Hard luck perhaps but rules are rules.

Was Dalton a good luck charm for the Kiwi boat? To think that our boat would sail 5 knots faster with him on board is absurd (Stephen Donald is obviously the only man that could have saved Team NZ and he was busy playing rugby in Europe). Was it a string of bad luck that meant Team NZ lost? Or was it a string of exceptional starts, flawless sailing and all completed on a very fast Oracle boat that won the final 8 races?

Traders too make their own luck. I think all successful people do for that matter. If you work hard at trading, have realistic expectations, strive to constantly get better, manage risk and never give up then, miraculously, you start to get good at it. It's only a matter of time and flawless execution of a proven process.

Congratulations to Team NZ. They flawlessly executed their plan and they made us proud, regardless of the final result.

- NZ Herald

Nick McDonald is a New Zealander teaching everyday people how to trade the worlds markets via his company Trade With Precision.

Nick McDonald

A markets and trading columnist for the NZ Herald

Nick McDonald is a leading independent trader and trading trainer with a global following via his company Trade With Precision. It started back in 2004 when Nick left his 9-5 job while living in London and within 3 months of discovering technical analysis became an independent full time trader. He founded Trade With Precision in 2006 born from corporate requests for him to train retail trading clients of large brokers and exchanges worldwide. A specialist in technical trading strategy for any market and any timeframe, Nick cuts the 'nonsense' associated with traditional technical analysis.

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