Trevor Lawrence put on a performance to last in Saturday’s AFC Wild Card game. Chapeau! Lawrence started the game with four first-half interceptions but kept throwing and returned his team to a big win. Here are some lessons we can apply to trading, which can also be a mental gain.
First and foremost, the Jags and Lawrence had a game plan. The interceptions were a setback, but the Jags didn’t change their game plan. They kept cutting and eventually set themselves up for victory.
Traders also need a strategy and cannot let a few losses sway them from that strategy. I backtest to quantify strategies and these tests always include the running number of losing trades. A mean reversion strategy that I presented last week, had a maximum of nine consecutive losses over a 15-year test. Therefore, I can expect 5-9 consecutive losses at any point in the future. I would reevaluate the strategy should that number reach ten. Also note that the maximum number of consecutive winners was 20.
Trevor Lawrence threw four interceptions and kept throwing in the first half. Not only did he keep throwing, but he kept playing with confidence, one move at a time. The Jags would certainly have lost the game if he had stopped throwing or started throwing tentatively.
Losing trades occur and traders should continue to take signals generated by their trading strategy. Of course, the strategy should have a positive expectation. The key is to stick to the rules and take trades as they come. As with uptrends, stock curves do not go straight up. Trends (stock curves) zigzag up with pullbacks (drawdowns) on the way up. We cannot catch the winning trades or get a winning streak if we stop trading the strategy.
Losing streaks are undoubtedly difficult. A trading strategy and process can help traders navigate rough seas and stick to the plan.
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Arthur Hill, CMT, is Chief Technical Strategist at TrendInvestorPro.com. Focused primarily on US stocks and ETFs, his systematic approach to spotting trends, finding signals within trends and setting key price levels has made him a valued market technician. Arthur has written articles for numerous financial publications including bars and Magazine for stocks and commodities. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from Cass Business School, City University, London.
