Trading is like cab driving
20:00, 17 March 2016
· By CMC Markets
By Phillipp Pfitzdenmaier of Trade With Precision
Recently I had to travel quite a bit, so I spent a lot of time in cabs. I like to chat with the cab drivers: new people, new opinions and sometimes even fresh ideas! During one of my last rides, the driver told me about the cab business and his stance on it. And, with every sentence I wondered more if he wasn’t actually talking about trading as there seemed to me that there are many similarities. Let’s look at his take on taxi driving and the taxi business and see where and how this translates to a sound trading mind.
“You can’t hit them on the head and pull them in”
As a cab driver you can’t create business out of thin air. Same is true for trading. Just because you want to be trading now doesn’t mean that there’s a good trading opportunity in the markets which you are watching right now.
“You can’t rush to the hot spot – once you arrive it’s probably already over”
So you might be tempted to rush where the action is? My cabby explained that in the days of radio transmissions via voice (today it’s all data & digital) cab drivers would listen and once they realised where the “action” was (e.g. a theatre’s play had just finished) they would rush there. Usually only to realise that the action was already over. The same is of course true for trading: once you hear about that merger, or that one IPO featuring or other big news in the press – it’s usually too late to participate in the move. So his next statement really is important.
“Patience is key”
If there is no opportunity right now in the markets you’re watching and rushing to supposedly great opportunities from the news doesn’t work as well, there is only one thing you can do: wait. Remember you can’t force the markets and instead of risking your hard earned money on suboptimal trade setups you should rather wait on the side lines for those outstanding trading opportunities where really all checkboxes are ticked and we have been able to stack all the odds in our favour. And, please remember: even those can be losers.
“On average all months are the same”
While my cabby has great rides and bad ones (those ugly short trips after having waited several hours) he has learned over the years with all his experience to not worry or care. At one point he realised, that he earns the same money every month on average. It doesn’t matter if he started with several great trips in the first days or didn’t earn much money in the next few days. Intuitively he realised that it’s not about one trip, it’s about the large sample set over a longer period of time. And once more it’s just the same thing with trading: the result of each single trade (even the outstanding ones) is random. It’s either a winner or a loser: you’ll never know in advance. But, you do know your expectancy for your trade plan and if you execute your proven strategy flawlessly in the market over a large sample set of trades you do know that you should come out ahead.
“Most novices don’t last”
My cabby obviously was “in the zone” for his profession.
Plan your Trade. Trade your Plan. And always: happy trading!