Date: 6/28/2022
Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
This time of year, it seems like motorcycles are everywhere.
You never actually realize how many people ride until the summertime sun comes out.
Sure, I’ve thought about getting a bike, but I’ve always been concerned about the risk. I hear horror stories about accidents all the time, and it just doesn’t seem appealing.
My friends who ride just shake their heads and laugh at me.
But I just smile and shrug it off.
If you’re reading this and you love bikes, just save your breath and taunts – I’m not getting a motorcycle.
Of course, these conversations with friends pop up in summer as they’re all planning road trips. One conversation I had recently was quite intriguing.
My friend, whom we’ll call Alex for now, is a professional trader and avid biker. He’s been riding most of his life and trading for about 15 years.
His musings on the similarity between riding and trading are exceptionally insightful.
I assume at least some of you have bikes, so I thought I’d summarize Alex’s ideas.
“The best case scenario for the gun companies are laws and media coverage that drive people to buy. At the same time, there can’t be any restrictions that could actually cut into sales figures. That appears to be what we are facing.”
Both riding and trading involve risk.
On the road, you could wreck. A lapse in concentration, turning too fast, or hitting a patch of gravel could land you up in the hospital or worse.
Even if you do nothing wrong, there’s always the threat of other drivers causing an accident because they don’t see you.
In the market, you’re putting your capital on the line; if you aren’t careful, you could lose it all.
Though it might not kill you, going riches to rags has sent many people over the edge.
Alex told me that to make riding safe and fun, you must first learn how to operate the vehicle. So he took several riding courses and started out with the basics.
Clutch and throttle control. Shifting gears. Turning smoothly. Swerving and emergency braking.
Chris, “all you really have to do is work on your skills and don’t try to ride outside the limits of your ability. Isn’t that what you teach your trading students?”
Of course.
Learn the terminology, formulate a plan, paper trade, and use only small positions on trade types you can manage properly.
That’s exactly how I coach.
According to Alex, whether you’re cruising down the highway or putting on a call debit spread, you need to ensure that you control all the variables you can.
Entries and exit points, identifying set-ups, and allocation are 100% your decisions.
So make sure you aren’t losing just because you’re placing ill-advised trades. That’s always the first step.
Alex continued, “Certain events on the road you just can’t predict. For example, I can be the best rider in the world, but some guy could be texting, swerve into my lane, and hit me.”
“All I can do is respond.”
“This is where experience recognizing potential hazards and skillful evasive driving could save me. So I look for inattentive drivers, erratic pedestrians, and poorly loaded trucks.”
When the situation gets uncertain, your mind should be looking for potential escape routes such as the shoulder or other lane.
And even if he did wreck, Alex said, there were ways to help minimize the damage.
For instance, experienced riders know if they lay their bike down, they should push away from it so they’ll decelerate and not get dragged along the asphalt.
This is the same with trading.
You have to be able to manage the trade. For example, rolling your trades out in time, adding defensive hedges, and exiting when the signals dictate.
Analogies sometimes drive home a point better than simple instructions.
I don’t even ride, and I could follow Alex’s logic.
Hopefully, it will be even more helpful to some of you bikers out there.
Cheers,
Chris Hood
The current market = Quentin Tarantino’s Reservoir Dogs
