Is there much of a difference in the mindset of a racing driver and a trader?
A Formula 1 driver must be patient yet decisive, considered yet quick, and composed but ready to strike. A matter of seconds can mean the difference between success and failure. Sound familiar?
That’s because these are the same attributes required to be a successful trader. Both professions demand a high level of mental agility, as well as the ability to take quick and decisive actions, and choose the right time to strike.
When Kevin Magnussen took the HaasF1 team’s first-ever pole position in the championship at last season’s São Paulo Grand Prix, it was because he acted decisively in setting an early time and capitalised on the situation before track conditions deteriorated. No doubt fortune was a factor, but in this case, it favoured a driver who had acted patiently yet decisively to position himself for pole should other elements go his way. Fortune favours the brave.
Similarly, in trading, it is essential to be patient and choose the right moment to make those big decisions. Investors often lack composure, making brash financial decisions in the heat of the moment based on their emotions. This type of behavioural finance is often irrational and can have unpredictable consequences.
Rushing into a decision, on the track or in the markets, can ultimately be the start of a downfall that can set off a chain reaction of continuous bad results. For instance, investors often hold losing positions rather than feel the pain associated with taking a loss or feel a sense of panic at the amount they have lost and are determined to gain it back. This is referred to as chasing losses, which can lead to overtrading. When you overtrade, there is a high probability that you will open trades that are poorly or not well-researched, and there is also the risk that comes with opening so many positions in that it is hard to manage most of them at once.
“Rushing into a decision, on the track or in the markets, can ultimately be the start of a downfall that can set off a chain reaction of continuous bad results.”
Once in a loss, it is easy to get in the mindset that you need to gain as quickly as possible, but that psychology can end up putting you further into the red. One thing to remember, losses will always come in trading, but it is how the aftermath decisions are made that can help make the correct calls and change losses to wins.
An F1 driver has the same mindset. Magnussen says: “In a race, you must keep an eye on everyone around you and patiently wait for the right moment to attack, especially when you look at the overall strategy. What may seem like a good move at the start could affect your strategy at the end of the race, so be patient, take in the whole picture and choose your moment.”
“What may seem like a good move at the start could affect your strategy at the end of the race, so be patient, take in the whole picture and choose your moment.”
To help see the whole picture in trading, there are many analytical tools that you can use to avoid making brash decisions based on emotion. Being able to spot genuine trends and opportunities can only be achieved through careful consideration, knowledge and self-control and allowing yourself to have professional patience plus sound yet ruthless decision-making will almost always equal the right time to strike.
Head over to our Learning Hub to discover educational resources on topics such as trendlines, moving averages and support and resistance.
