Trading Lessons from Tiger Woods

Aug 13 08:18 2010 Larry Levin Print This Article

Tiger Woods has had a roller coaster year. This can easily be related to a trader's year. Do you have the resilience to bounce back from a loss?

The DownfallThe world where we humans live has always been and will always be a turbulent one. Life progresses smoothly for a while,Guest Posting and then unexpectedly, it can change. Success becomes failure, and sometimes failure can turn into a catastrophic loss. 
It happens to the best of us, even to someone as successful as Tiger Woods.
At the height of his career, Tiger was the highest-paid professional athlete in the world, he was only behind Jack Nicklaus in the number of times he had won a major professional golf championship, and he ranked third all time in total number of PGA Tour events. He seemed unstoppable.
Fast forward to this season, and the story changes quite dramatically. He is currently only 85th on the PGA Tour money list, and he is not even in the top 100 in scoring average, driving accuracy, greens in regulation and putts per round. Last week, he had his worst 72-hole professional tournament since his very first one in 1996.
How Do You Cultivate Resilience?At some point, almost every trader faces catastrophic loss. Although he shouldn't if he uses proper money management strategies. However, lack of experience or arrogance arising from success causes traders to disregard proper money management. Some traders never recover from a catastrophic loss. Instead they give up, withdraw from trading and pursue something else. On the flip side, the resilient traders recover, learn from their mistakes and start again.
Resilience originally was the capacity of a body subject to strain, especially compressive stress, to recover its size and shape after deformation. 
Similarly, resilience in a trader is the ability to bounce back from a loss.
How can one cultivate resilience? The lessons of Tiger are instructive here.  Resilience is best cultivated by building redundancy and depth.
Be RedundantRedundancy of Skill Set:  Tiger Woods has shown resilience by developing a redundant skill set. He has adjusted his swing as needed to compensate for a surgically repaired left knee, a broken leg and torn ligaments. Similarly, a trader needs to develop a variety of trading skills so that he has different means for adapting to changing marketing conditions.
Redundancy of Experience and Expertise: Tiger has shown resilience by developing relationships with other successful individuals. He has sought the assistance of his coaches, Butch Harmon, then Hank Haney, and now possibly Sean Foley, to find a way to return to top form. Similarly, a trader should find a mentor, a seasoned veteran, who can assist him in becoming a better trader.
Redundancy of Play and Practice: After each setback, Tiger returned to the game of golf as soon as he could, first through practice and then through actual tournament play. Similarly, after a catastrophic loss, traders need to determine what went wrong. We need to dissect our loss while continuing to trade, even if it is only on paper.
Redundancy of Mental Support Networks: Until recently, Tiger had a support network that could assist him in working through the mental challenges arising from catastrophic failure. For a larger part of his life, he relied upon his father. When his father died, his family helped him through the grieving process. Similarly in trading, mental challenges will often be the toughest obstacles for a trader to overcome.
Be Redundant, But Not In Your MistakesCatastrophic losses can create self-doubt and fear, denial and self-deception. All of these emotions are dangerous. Self-doubt leaves us second guessing ourselves and often leads to the paralysis of analysis. Fear causes us to rush into situation with the same faulty strategies that led to our catastrophic failure in the first place. 
A trader needs to develop a support network that can help him weather the storm.
Redundancy of Reserves: Whether Tiger Woods can overcome the mental challenges to success remains to be seen. If he can’t, let's hope he has followed the last rule of resiliency, keeping a financial reserve so he can begin another career.  
Many individuals find it difficult to begin again, so they don’t. A good example of this is Mike Tyson, who earned over $300 million during his career, and yet he descended into bankruptcy in 2003. 
A trader must always maintain a capital reserve so that he has the resources to begin again. A catastrophic loss does not need to end your career as a trader. Instead it can reward you with life lessons that make you stronger and more successful in the future. 
Trade well and follow the trend, not the so-called “experts.”
Larry Levin trades the S&P 500 at the Chicago Board of Trade, now known as The CME Group; the world’s largest and most diverse financial exchange. Levin is the Founder of Trading Advantage.com, a leading trading education firm specializing in empowering traders to achieve and surpass their financial goals. He appears regularly on CNBC, Fox Business News and other major media outlets worldwide. Contact Larry at 888-755-3846 or larry@tradingadvantage.com
In an effort to comply with all applicable rules and regulations please be so kind and read the disclaimer below:
Risk Disclosure Statement - Past performance is not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points:
(1) You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
(2) Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit (”limit move”).
(3) Placing contingent orders, such as “stop-loss” or “stop-limit” orders, will not necessarily limit your losses to the intended amounts, since market conditions on the exchange where the order is placed may make it impossible to execute such orders.
(4) All futures positions involve risk, and a “spread” position may not be less risky than an outright “long” or “short” position.
(5) The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.
(6) You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited for your account. ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:
(7) Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally “linked” to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction.
(8) Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting there from, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign option contract is liquidated or exercised. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS







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Larry Levin
Larry Levin

Larry Levin is a futures trader in the Chicago Board of Trade, and he is a mentor to aspiring futures traders.

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