An NYSE Scalper's Tale - A Trader's Diary

Tuesday, May 30, 2006

Is Trading Similar To Fighting?

Gross: +$686.00
Net: +$607.70
Loss From Top: 0
Trades: 43
Shares Traded: 68000

Stocks Traded Today (net profit/loss):
Walmart (WMT): +$327.42
Hewlett Packard (HPQ): +$135.46
Bank of America (BAC): +$74.29
Corning (GLW): +$72.27
Home Depot (HD): -$1.74

Over the weekend, I was flipping TV channels when I came across "Top 50 Knockouts" from some sort of Ultimate Fighting sport. If you don't know, Ultimate Fighting Championship essentially pits two martial artists in a caged hexagonal ring. The loser is either knocked out cold, submits (via choke hold or any kind of hold designed to try to break arms or legs), or is beaten soo badly the referee has to stop the fight (I know, sounds kind of gruesome, but bear with me).

After watching the first few knockouts, I started to recognize a familiar pattern.

Almost every knockout involved an aggressive fighter and a defensive fighter. The aggressive fighter would be the one who flails about, aggressively throwing punches left, right, and centre, and would try to chase down the defensive fighter.

The defensive fighter on the other hand, would simply duck, bob, block or move out of the way of incoming blows. The defensive fighter would wait for the perfect opportunity to land a few hard hits.

Can you guess which one usually ended up knocking out the other?

A lot people would say the aggressive one would probably knock out the defensive one. But about 75% - 80% of the time, it was the defensive one that knocked out the aggressive one!


The aggressive one is so busy trying to throw and land hard hitting blows that it leaves them exposed. The defensive fighter on the other hand, waits for their opponent to act first and hits them hard whenever the perfect opportunity arises.

Think about what you see in the movies...all those bar fights, Jackie Chan, and Bruce Lee movies. Yes - I know, it's all scripted but I believe there's an element of truth to them. The one who throws the first punch or the first blow (the aggressive one) is usually the one that ends up on the floor unconscious.

How does this relate to trading? If you are an aggressive trader, you'll probably always want to be in a position - putting on many trades (like throwing lots of punches). Since an aggressive trader is almost always in a position, they are always exposed to potentially take a hard hit (Futures move against them, big buy/sell order that goes against their position).

If you are a defensive trader, you wait for opportunities and when things are just right, you go in for the kill. Being patient is probably one of the hardest things to enforce, but can be very rewarding.

I'm not saying that aggressive traders cannot make money (in fact, many aggressive traders do make lots of money). While I was watching the 50 top knockouts, there were a few aggressive fighters who knocked the other out - BUT being consistent and having the probabilities work for you is what I'd rather have on my side.

As a trader, you need a balance of both - you need to be aggressive at times, but at the same time, you need to be defensive to prevent losing a lot of money.

Today, I followed my trading rules to the letter and I chose my battles wisely. You can see that the number of trades today is about half what I've been trading the last week or so.

And because I was defensive today, I waited for the markets to give me the opportunity to put on a high probability trade (the knockout). In fact, I only had one losing trade today. I kept my share sizes small today because I'm still a little weary of the volatility. But it looks as though the markets are calming down (in terms of volatility) and I may begin trading my normal share sizes tomorrow.

A couple of days after I had watched the top 50 knockouts, I happened to catch an Ultimate Fighting Championship fight. Again, there was an aggressive fighter and a defensive fighter.

Right from the start, the aggressive one came charging towards the other, throwing a flurry of punches (most of which missed). The defensive fighter bobbed from side to side, avoiding the incoming onslaught. The defensive fighter threw a few punches here and there, just to keep the aggressive one honest.

The defensive fighter managed to back away from the action when the aggressive fighter began another onslaught of wild punches. Then it happened. BAM! The defensive one threw a hard punch right to the jaw of the other, knocking the aggressive fighter out cold.

The whole match lasted less than 20 seconds.

What kind of trader/fighter are you?

Good Trades
9:45AM - Walmart (WMT) started turning downwards and the Futures were trending down. Support on WMT broke, so I got short 4000 shares. The Futures tanked shortly afterwards so I got out of my position as follows: 2-cent winner (800 shares), 5-cent winner (500 shares), 6-cent winner (700 shares), 8-cent winner (1000 shares), 15-cent winner (1000 shares) ($313 profit before fees).

Bad Trades


Post a Comment

<< Home