While playing tennis a thought struck me about the similarities it has with good trading.
My tennis instructor likes to say “it’s a game of mistakes.” It’s for this precise reason I’ve learnt that when matched against a casual player like myself, my first priority is never to take the risk of trying to hit a winner, but rather just get it back over the net, and let him make a mistake. Try to force an error.
When I play someone clearly better than me however, I feel more inclined to go for that winner earlier. Why? Because I know the longer that rally goes on, the more likely it’s me, the inferior player, that makes an error and loses the point. In the long run, the better player will win.
With the great Bjorn Borg and his tightly-strung racquet, incredible athleticism, and relentless use of top spin, it wasn’t so much a case of him beating other players, as them losing to him. He was the master at sitting on the baseline and letting opponents wear themselves out, the rope-a-dope of tennis.
He still holds the record for the longest ever rally in a grand slam, this 86 shot marathon from the 1978 French Open which naturally he won, after Vilas eventually made an error and hit it out, wishing he could have those two and a half minutes of his life back.
Now, if I were to play a match against Roger Federer for a million bucks and he said I can play for however long I want, what would I choose? One set? One game?
How about one point?
If we play just one point, that is my best chance of winning. He might double fault, or I might by some miracle play the best return of my life that floors the game’s greatest ever player.
Now what if Roger were to play against me in a trading competition, what would be the ideal timeframe for him?
It’s the same scenario, but the roles are reversed. If we made one trade each, or measured our performance over one day, one week, or one month there’s a decent chance he could beat me. But over one year, over many years, I would very much hope I would come out the better trader.
In one of my most popular posts – Marty Zweig, Ned Davis, and Humility – Ned Davis quotes a pioneer in technical analysis, George Chestnut, who said “We are in the business of making mistakes. The only difference between the winners and the losers is that the winners make small mistakes, while the losers make big mistakes.”
Trend followers have a lot of losing trades, but we know to keep them very small so our winners are big enough to pay for them and then some. I’ve learnt to widen my stop, let winners run, reduce position size, and lengthen my timeframe.
Trend followers know “it’s a game of mistakes” and those losing trades are part of a positive expectancy system that when played for long enough will see us come out as winners.
The market will always be there, so move back to the baseline and settle in for a long game, one you can win.