Interesting story… I’ve recently started working with a proprietary trading business. For those that do not know, a proprietary trader trades with the company’s internal funds and within certain guidelines and limits set by the management.
While putting together some training material for some new traders, I started thinking back to my time racing motorcycles.
I started racing after several years of riding road bikes and just being fed up with those annoying speed limit signs. At first it was just a paid track day once in a while; then once or twice per month; and then it all became rather serious with a complete racing bike and garage full of expensive parts.
By the way, there is a great trading-related point to all this, so please read on…
Back to the track, the road to racing kinda went like this:
Back in 1999, I had a very good trading month and within hours of funds hitting the bank account, I paid cash for a brand spanking Suzuki Hayabusa – at the time the fastest production road bike ever built. Very nice pic below.
I obsessed over this thing and rode it every chance I had. I soon realised this missile was quite dangerous with my limited riding skills so set about taking lesson after lesson. The way I thought about it was my bike was at a certain level and I had to catch up to it. I completed multiple courses run by the Superbike School, Stay Upright and a couple of others.
I soon realised that as much as I loved the Hayabusa, it was not ideal on the track – super fast down the straightaways, but terrible around corners, given its size and weight. So I replaced it with a new road going Suzuki GSX-R1000. After modifying with better brakes, exhaust and suspension as well as full race fairing, I had a very credible track bike. See pic (me on the left).
This is where I stepped things up and started competition racing. I was still hooked on doing as many riding courses as there were available. I repeated a few and then hired my own personal instructor. I even had personal instruction from a couple of top level Australian riders. Brilliant stuff.
At this stage, I also tossed the modified Suzuki and bought a proper racing bike. This was another Suzuki, the same model in fact, but one that came from the factory as a full race bike with all the proper trimmings. I wanted to give myself no excuse for going slow.
Going through the Superbike School courses was a great experience. They essentially give you certain things to work on for each track session. For example it might be a vision exercise, body positioning or something to do with throttle control.
The interesting thing was that each little component built on the previous and in the end, I had created an entire plan for riding. I was far from a Mick Doohan prodigy, but my riding confidence went through the roof, my lap times fell and all in all I was getting a whole lot more out of the experience. I also started to experience a new level of focus and concentration.
Pretty quickly I saw the parallels with trading. At the time I was trading a large options account, but the lessons apply to any type of trading.
Naturally, there were still challenges. Interestingly, I knew all the challenges were in my head. Take for example the Eastern Creek track in Sydney’s west. Turn One was a very fast left hander (205 – 210kph – for me at least). This was followed by a slow and tight left hairpin that was off-camber, had noticeable seal lines and an uneven surface. It was where everyone had at least one spill – including me. It was the corner you’d talk about with the other guys in the pits between sessions.
Anyhow, the braking-point for that left hand turn would often psych me out. I knew the spot at which I should be braking but often fear made me grab a handful of brakes 2 – 3 metres before it. It was something I would be aware of on the approach to Turn Two every lap. Sometimes I would nail it. Sometimes it would nail me.
Have you ever been in front of the trading screen, knowing you should pull the trigger to either enter or exit, but find a reason not too? That was my Turn Two at Eastern Creek.
It’s very easy to keep a fear alive. All you have to do is change your focus and rationalise. I could have for example thought “my overall lap time is improving therefore that little bit does not matter”.
In trading, that’s like knowingly making a mistake and thinking “at least I came out of the day/week/month in profit”. That’s pretty much a formula for repeating the mistake and who knows, that mistake me be the one that empties your bank account.
Getting past fear requires awareness and repetition, not ignorance. My Turn Two was far from perfect, but I was honest with myself and consciously worked on improvement.
A friend from NRMA Insurance once told me they ran a survey where more than 80% of people thought their driving skills were above average. Before taking my riding seriously, I thought I was a good rider – better than average at least. Looking back, I think I was closer to average.
Some of my friends thought I was overdoing it when it came to attending riding courses. I disagreed. As my skills improved, so did my confidence. Then more and more things became second nature. Things that would previously be in the front of my mind became automatic.
This cleared the mind of clutter, allowed me to focus and the bottom line was I was riding faster with less effort. Think about all the things you need to do when coming up to a corner:
- Where do I brake?
- How much do I break?
- How much front brake, how much back brake?
- When should I turn in?
- How fast do I lean the bike?
- How much lean angle?
- Where should I be on the track?
- What gear should I be in?
- What is my body position?
- Where should I be looking?
- How much throttle to use and where?
The list is actually longer than this, but you get the point. Imagine how difficult riding would be if you are thinking of all these things. It really does slow you down. However, repetition serves to automate these processes. The effect is a clearer head and faster times.
The parallel with trading is obvious. Regular education is very important. So is repetition. It’s that repetition that makes something second nature, boosting confidence and skill.
The thing that really stood out is the need for focus. On a track at race speed, there is no time for thinking about anything else than what is ahead. I would think of extra thoughts as extra weight and weight slows you down.
An interesting thing happened on my first ever day of racing. It was Lap 1 of Race 1 at Eastern Creek. Coming around Turn 11 into Turn 12, the final turn, the rider right in front of me stepped out a little wide and his front wheel hit the dirt immediately pulling the bike out from under him. His helmet hit the ground so hard I even thought I heard it.
A natural reaction is to think and hope he was OK and of course think about the incident itself. The problem there is that it would take away focus from what is important i.e. the next corner and the rest of the race. I put the incident out of my mind until I came back around and saw he was OK. Then it didn’t cross my mind again until the end of the day. That is the focus you need for performing.
The same goes in trading. You need to determine and apply the right amount of focus for the type of trading you do. For position traders, checking markets once a day may be enough. For intraday traders, you need your eyes on the screen and no thinking about shopping, picking up the kids, the phone bill etc.
Goal Setting and Planning
Goal setting is important and logical in most pursuits. When it came to racing, I was inspired by something Valentino Rossi said. It was something like this:
“My goal for each lap is a perfect lap. I pick the optimal braking and turning points for each corner and try to hit it every time. It’s a challenge I set for myself.”
There is a lot of art in motorcycle riding, but there is also a lot of science. Breaking it down into a science and putting a plan together works. On practice days for example, I would literally stick a note to my petrol tank detailing what I wanted to work on. Each session was different and I’d never make it too complex. Here’s an example:
When I first thought of the idea of putting notes on my petrol tank, it seemed a bit silly. Realistically, you don’t have time to sit there and read your bike… However just the process of writing out the note and sticking it there made it worthwhile. I could have just as easily put the note in my toolbox and it would still work as the issues were clear in my mind.
From a trading viewpoint, what’s wrong with making small notes and sticking them next to your PC? A ‘trading translation’ of the above note might be:
This is hardly a complete trading plan, but that’s not the point. The idea is to work on a few small issues at a time. Don’t overdo things – keep it simple. Then regularly change the note. If you’re day trading, perhaps have a new note every day. “Today I will focus on…”.
The Zen of it all
The biggest improvement in my lap time came during an instructional day. I remember the lap well. Without looking at my timer, I would have guessed it was a slower lap than normal. I was relaxed and almost out of body. It was a weird combination of focus and detachment.
For some time, I had been stuck at a certain lap time and I just could not get below it. After this particular lap, I looked down at my timer and saw I was two seconds faster. Two seconds was a really big jump. I immediately came into the pits to think about what happened and I realised that it was detachment. I was relaxed and in the moment.
There is an interesting paradox in trading. I’ll bet there is not one speculator that got into the business without the goal of making money, yet we are taught not to think about the money that is being made or lost.
How do you get around something like that? How can you detach yourself from the money in your trading account? It’s not an easy question. Ed Seykota in Market Wizards talks about the difference between winning/losing trades and good/bad trades. A good trade is one that was put on for the right reasons and the rules were followed. A good trade may well lose money, but if you follow the rules, it’s a good trade. Strive to make every trade a good trade.