Trading, Like Sports, Requires a Game Plan

by Matt Krupski

In the sports world, they say that defense wins championships. However in most instances, a skillful offense coupled with a solid defense and sufficient preparation determines long-term success. In trading, the same factors can govern your profitability. A “shut-down” defense in sports is still vulnerable if a team’s offense is ineffective and can’t score points. Similarly, a team with a prolific offense is useless if their defense can’t stop the opposing team.

Successful trading often relies upon being simultaneously confident and humble. An overly defensive or humble trader risks being too afraid to trade. Similarly, an overconfident/aggressive trader risks getting “married” to a position, convinced that he or she is right, until forced out of the position. Profitable trading comes from finding a balance between offense and defense; you must be aggressive and confident enough to put on a position, yet disciplined and defensive enough to and manage your risk.

Often times, I find that aggressive traders would rather be “right” than make money. They convince themselves that their analysis is correct, assure themselves the market will go their way, and consequently refuse to exit losing positions until they run out of money. On the flip side of the coin, overly defensive traders face “paralysis by analysis;” they spend so much time analyzing every alternative outcome that they talk themselves out of a market. It is impossible to make a profitable trade when you have no position on.

Many shortcomings in the sports world can be overcome with intense preparation. Coaches collect information, study opposing team’s tendencies, and create a game plan to give their teams an edge that could ultimately determine victory. The same preparation and discipline can be applied to trading. It helps to know what factors are moving the market: what upcoming economic statistics could affect prices, what large positions are outstanding and who is holding them, where prices have been in the past, and where technical support and resistance levels are located. Not having this information puts you at a disadvantage to other more informed traders and institutions in the marketplace.

In addition to gathering information, you should create a game plan. Before placing trades, ask yourself several questions. What is your risk tolerance? What is your profit objective? Will you be using stops? Will you be using options to hedge your position? Even if you’ve taken these steps to gather information and create a game plan, another major hurdle trades must overcome is execution and discipline. If your analysis proves wrong, are you disciplined enough to follow your game plan and exit your position? If your analysis proves right, are you disciplined enough to take profits and overcome your greed?

A common problem traders have is separating their emotions from their trades. Working with a professional can help in this regard. I provide daily independent research to my clients to keep them informed, and provide a professional trade desk who you can call to discuss your strategies and exchange ideas. We specialize in developing a personal relationship with our clients, so that we can help keep you disciplined. If you are deviating from your strategy, we can help you re-focus and remove your emotions. However, like a coach, we can only help to craft and create the game plan; we don’t take discretion over your account. You, the player, are in charge of your destiny—the ultimate execution is up to you.

Matt Krupski is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 877-847-3034 or via email at mkrupski@lind-waldock.com

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

You can hear market commentary from Lind-Waldock market strategists through our weekly Lind Plus Markets on the Move webinars, as well as online seminars on other topics of interest to traders.

These interactive, live webinars are free to attend. Go to www.lind-waldock.com/events to sign up. Lind-Waldock also offers other educational resources to help your learn more about futures trading, including free simulated trading. Visit www.lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors. © 2008 MF Global Ltd. All Rights Reserved. Lind-Waldock, Futures Brokers, Commodity Brokers and Online Futures Trading. 141 West Jackson Boulevard, Suite 1400-A, Chicago, IL 60604.