Why you need the talent and discipline of a pro athlete to invest

Like professional sportspeople, retail traders need to develop their style and strategy over time and across all market conditions

Novak Djokovic celebrates winning Wimbledon on July 11. Like professional athletes, investors also need to develop routines to create consistency when they trade. PA

As many countries slowly come out of their pandemic-driven lockdowns, the activities and public events we took for granted are gradually coming back on line. Fans are returning to sporting stadiums and the live roars of thousands are backing up the action on the pitch, instead of the pre-programmed cheers generated from computers.

Two such sporting events held this month, the Uefa European Championship 2020 and the Wimbledon tennis championship, were marvellous reminders to us all of the power of sport – and also what we have missed. The agony and ecstasy of losing and winning, the emotional roller coaster that both the players and spectators go through is something to behold. And we still have the 2020 Summer Olympics in Tokyo, which begins on Friday, to look forward to despite the fact that there will be no live crowds allowed in the stadiums.

So why am I writing about sport rather than investing? With sporting events back in the spotlight, I was reminded of the link between top-level athletes and trading and investing. Indeed, there are a number of lessons we can derive from sport that can help us to better analyse the financial trading game.

Find your own swing

No tennis player has the same serve, no football player takes the same penalty and every pro golfer has their own swing. Practised over years, the styles of executing shots in any sport are unique to the athlete. And any tweaks need to be checked to ensure the results are the same or better.

It’s the same in trading. Your trading style and strategy need to be developed over time and across all market conditions. Your own style and personality, along with your lifestyle, will often govern how you trade and view the markets. When the pressure is on, traders have to call upon their trusted plan in the heat of the battle to benefit and succeed. Any changes they make need to be tested to safeguard high-quality results.

Follow a routine

As the Greek philosopher Aristotle once said: “We are what we repeatedly do. Excellence then is not an act but a habit.” Routines are very powerful and athletes have certain rituals that they repeat ad nauseam. Novak Djokovic, tied for the greatest men’s tennis player of all time in terms of grand slam tournaments, bounces a tennis ball a certain number of times before he serves. Raphael Nadal is perhaps even more compulsive about his routines, either when returning serve or when preparing to serve himself.

Traders, too, need to develop routines to create consistency. Positive rituals can help to regulate and clarify the trading environment, while negative ones are not conducive to performance. Reliable routines may include measuring risk tolerance and knowing your time horizons, as well as more prosaic issues like consistent exercise and pre-performance.

Every opponent is different

Each opponent on the field of play will offer a unique set of challenges and attitudes. Some football teams are known for their attacking style or their organisation and structure, others for their defensive solidity. That means their opposition can’t use the same strategy for each match; witness the England football team using different tactics, personnel and formations for virtually each game of Euro 2020.

In trading, the same applies in that there are hundreds of different instruments and ways to trade. This means that a trader’s strategy has to adapt to fit with fast-moving markets or different time frames. It is not enough to blindly apply your strategy to any market as this is rarely successful.

Be wary of overconfidence

Sport has the ability to make us feel like world-beaters and it can be the same for professional athletes. For instance, the French football team has famous players who are exceptionally confident in their ability. And yet, when they scored their third goal during Euro 2020 against underdog Switzerland, many believed they became overconfident. Les Bleus subsequently gave up their lead and lost the match.

Overconfidence, in sport as in trading, is intense and carries momentum. Traders, especially those just starting out in financial markets, lose focus, increase position sizes and take more risk when they are doing well. And that can be the quickest way to getting wiped out.

Handle losses like a winner

We end with perhaps the most important lesson, which also translates into everyday life. Professional athletes are only too aware that they will experience bad patches and hot streaks. Tennis players will win seven straight games, football players will win 4-0 and be completely dominant.

But they know that a single game or match won’t ordinarily define their career. The world's most expensive teenage football star missed a penalty in the France v Switzerland match, resulting in his team exiting the big stage. Meanwhile, many of the greatest basketball players have win/loss rates below 50 per cent.

It is exactly the same in trading. Losses are part of the job and the sooner traders can park them, keep perspective and learn to move on, the more chance they have of being successful. It is important to develop both prevention and recovery strategies to deal effectively with mistakes. But, as in sport, we often don’t improve without the experience of failing.

Hussein Sayed is the chief market strategist at Exinity Group