Playing the long game – Contrasting football to trading

Clearly, I run the risk of overthinking things, and this is obviously situational given the Euros are coming to a climax, but there are similarities worth exploring… Hear me out…

Firstly, having watched all the England games, it sends a message that you don’t necessarily have to play well to win – play can be ugly and frustrating to watch, but if you can find a way to get a result, that’s ultimately what matters. I guess trading is similar, in that the ongoing journey to find one’s edge, doesn’t happen overnight and can also be frustrating and at times requires a huge amount of soul-searching.

Our approach to loss in trading vs football

I will start with the approach to loss. In football everything is geared towards winning, no more so than in major international tournaments, and there is little tolerance for loss. While all teams will face the odd loss and require a winning mentality to bounce back, but should the team undergo a prolonged period of poor performance and loss, when expectations from fans are elevated, it doesn’t take much before the masses turn on the team/manager and sweeping changes will be made.

Trading is no different and if a trader has no clear strategy and understanding of edge and finds their account balance continuously falling, then doing the same thing repeatedly without making changes makes no sense. And, just as supporters turn on a team, the market will also take its pound of flesh.

The journey of a trader is about progression, longevity and for certain trading strategies, repetition – that is, repeatedly finding high probability set-ups and price action and exploiting your edge with confidence when the right conditions present themself.

Importantly, the best traders are conditioned to react unemotionally to take a loss. Of course, all traders hope that each trade will have a positive outcome, but the fact is even the best traders and those that have full confidence in their system, lose frequently and know that losing is part of the game. They take a loss and move on to the next opportunity – and from this point of view, this is where trading is different from football.

If a player is not performing, managers take the player off and put someone on who could inject energy into play and add a new dimension to the game – Gareth Southgate (the England manager) may be the exception to this rule, but in principle, all good managers will make tactical changes at the appropriate time to breathe new life into the team. In trading, if a trade isn’t performing, there is an opportunity cost of holding that position, which we deal with in a similar way – we cut it and move on to the next and one that could yield a more positive outcome.

Performance starts in defence

The best football teams over the years have often been structured around an incredible defensive pairing, and/or a marquee holding midfield player. Having the platform to absorb the opposition's attack, consolidate possession and build a structure to efficiently distribute the ball forward, worked for the consistently great teams over the last 30 years.

Trading is similar, in that defence, played through a dynamic approach to risk and position management, is the cornerstone of any robust trading system. Knowing how much risk to take in a position, managing exposures over news, exiting at the opportune time, or even knowing when to stay out of the market, are where traders can build their own Franco Baresi and Paolo Maldini defensive partnership.

You can have all attacking flair and sophistication to enter a position, but if you don’t have a solid defence as your foundation then you leave yourself exposed – balance is key.

Playing your hand when you’re hot

In football, the best teams play their own game, and their strategy, especially when they are hot and have had a run of fine form. They lack self-doubt, and hold a positive expectancy – ultimately, they will go into the game attempting to repeat exactly what has worked before. They may make minor tweaks to account for individual marquee opposition players, but when things are working well there is little reason to change anything.

Traders obviously don’t have individual player matchups and only face one opposition, but they essentially attempt to play their edge and take capital from a huge pool of market players all with different views, beliefs, timeframes, and objectives. Hence, making money from that dynamic is the challenge - but this is where technical and price action analysis can play a role, as it aggregates all views and beliefs, supply and demand and offers an understanding as to the probabilities as to potential direction. Its where traders look for repeatable behaviours that may play out once again and that they can capitalize on.

Unlike football where there is just one opposition, a trader can’t just blindly go into any market and think their system will work regardless of the underlying conditions. The underlying trend, volatility, and liquidity all matter, and if that dynamic doesn’t suit the trading strategy, then stay out and look elsewhere.

A trader will seek out a market that suits their strategy, or if they trade just one market then patience is required until the right set-up comes along.

The importance of continuous improvement

One thing is clear, in both football and trading, documenting and thorough review of performance data is what creates a winning strategy – it’s only here that we understand what is truly working, so we do more of it, and what’s not working, so we do less of it, is how we continually improve.

It's all a bit of fun, but when psychology and strategy are at the heart of both football and trading, perhaps it's not so odd to contrast the two.