Prepared To Make The Play
I recently went to watch my 13 year old nephew, Joey, play in a baseball tournament. Every parent / grandparent / uncle is quick to brag about their son / grandson / nephew’s athletic ability. I am no different. Joey is an exceptional baseball player. He is exceptional in that he is a switch hitter with power from both sides of the plate. Besides that, he has an amazing ability to draw walks because is so patient at bat. He has roughly 150 at bats with 40 walks and an on base percentage of 600. When I asked him how he was able to be so patient and draw so many walks, he said with a profound simplicity, "I don’t swing at crap. It’s not that hard." (I could write an entire article about that as it pertains trading).
Joey’s baseball abilities don’t surprise me. My dad played baseball through college and then played one year of minor league baseball. My brother held the record at his college for the most homeruns in a season for more than two decades. He also held the NCAA record for hitting four consecutive homeruns in one game (as he tells it, the fifth one went foul). So to see Joey’s athletic ability flourish on a baseball field does not surprise me in the least.
On the weekend that I went to watch Joey’s game, my dad also came to see his grandson play in this baseball tournament. My dad, always the coach, watched as Joey tried to field a hard groundball hit to him at second base. With a runner on first, Joey bobbled the ball just long enough to disorient him as to where he should throw the ball once he regained control. The runners were safe at first and second. Just then I heard my dad ask under his breath, "If the ball comes to me, what am I going to do with it?"
"If the ball comes to me, what am I going to do with it?" Wow, that took me back in time! I had not heard that question in over 30 years. My dad used to continually remind my two older brothers and me to ask ourselves that question on the baseball diamond with every pitch that was thrown against our opponents. And now he was asking it, albeit under his breath, to my nephew, his grandson.
The intent of the question is to keep the player focused and ready for action at a time when heightened anxiety can overwhelm thinking and interrupt successful execution, like when Joey bobbled the ball for a split second. That one moment, not much more than a blink of an eye, created sufficient confusion in Joey’s mind to prevent what could have been a successfully executed double play. A momentary mental rehearsal before the pitch may very well have changed the outcome of the play.
In the current electronic trading environment, it is equally important that we ask ourselves a like-minded question throughout the trading day. "The [electronic trading] environment created is one of a very spastic nature where we move in a direction very quickly…You tend to blow through your risk parameters very quickly" (Collins, Daniel. More volume doesn’t equal liquidity. Futures Magazine. February 2010, page 56). In the electronic trading realm, the market can move very quickly, even in very liquid contracts. Now more than ever, we need to be continuously attentive. We need to ask ourselves, "If the ball comes to me, what am I going to do with it?" I’d like to look at two benefits of asking ourselves just such a question throughout the trading day:
- Greater attentiveness to an existing position
- A heightened state of readiness to enter a trade
Greater attentiveness to an existing position
Let’s face it; we all know that it can be tedious sitting in front of our trading screen all day long. One-thousand and one things grab our attention and can pull us away from managing an existing trade. We need fresh ways to keep focused on the market. A new approach can be to ask yourself applicable variations of the question, "If the ball comes to me, what am I going to do with it?" You can ask, "If the (stock/product) gets below (price) what am I going to do with my position?" or "If the ______ report comes out higher than expected, what am I going to do with my position?" These types of questions will prepare you ahead of time for a spastic move in the market. As you mentally run through a few scenarios you prepare your mind for action.
Let me present a real-life scenario and ask if something like it has ever happened to you:
I was in the process of accumulating a long position in the Eurodollars after a head and shoulders bottom. I intended on being long 20 contracts and was able to accumulate 8 contracts at the price I wanted over the course of a day. My profit objective was 30 points higher. I went to bed that night with my buy order in for the remaining 12 contracts and a stop in place for the 8 that I was long. When I woke up early the next morning the market was 40 higher. It had been 47 higher at one point, but I did not have a sell order in. Who would have thought that the Eurodollars, which typically have a seven or eight point range, would rally over 40 points overnight?
Instead of getting out of my 8 contracts that I was long at and above my already generous profit target, I searched the chart for an even further out profit objective. When the market dropped below my profit target, I held firm that, "It’ll come back to the highs." You have a pretty good idea how this ends, don’t you? I let the market run back far enough such that an $8,000 profit turned into a $3,000 profit. $5,000 slipped away because I did not know what to do when the ball came to me.
Incidentally, this story exemplifies why I tell my students that they need to have an accountability partner (AP) who will not be influenced by the dollar figures. If you choose an AP whose response to this story is, "Wow, you made $3,000 dollars overnight?" then you need to find a new AP.