Is there room for superstition and emotion in intraday proprietary trading?

My background in professional football has afforded me the opportunity to work in highly pressurised situations where outcomes, dependent on individual performance, are influenced by one’s ability to make and execute decisions on the pitch. A common question, often asked of professional athletes, is whether they have any particular superstitions, and I know from speaking to my friends in football that many believe there is a distinct correlation between their performance and their ability to follow a pre-match routine. 

When I started playing football for my local team, I remember reading an interview with Michael Owen where he stipulated that he always put his right boot on before his left. Jamie Vardy’s arm cast is a more recent example of the same. Despite recovering from a broken arm, Jamie continued to wear a strapping during Leicester City Football Club’s Premier League winning season in 2015/16.

 

Similarities can be drawn between sportspeople performing at an elite level and successful intraday proprietary traders. The ability to recognise situations developing and decide quickly on the appropriate course of action is essential for success, as is the ability to work under extreme pressure in result-driven environments. Therefore, superstitions provide a sense of comfort through repetition, and a routine helps to normalize upcoming high-pressure situations. Routines may involve wearing the same item of clothing, eating a certain meal or getting ready in a particular order, and can be beneficial for focusing, calming, and preparing individuals to compete in highly pressurized circumstances.  

Sky Sports recently launched a mini-series called ‘Mind Games,’ and episode one focused on how pre-match preparation can help combat the mental demands of sport. Referred to as being ‘in the zone,’ ex-England cricket captain Nasser Hussain described the adverse consequences of an overreliance on a routine. During the 1997 Ashes, Nasser scored a ‘double-hundred’ and described his feeling of being ‘in the zone,’ and his subsequent attempts to achieve that performance by repeating the same pre-match routine over and over again. Nasser describes these attempts as unsuccessful, however, I would argue that his ensuing performances benefitted from a constant pursuit of perfection through consistent repetition.

No room for emotion

A football player may form a positive or negative emotional attachment to playing in a particular stadium or against a particular team and the psychological effects of this relationship can impact performance. For example, Alan Shearer had a particular fondness for playing against Sheffield Wednesday shown by a goals-per-game ratio of 1.33, having played against them 6 times, scoring 8 goals. Similarly, Michael Owen had a goals-per-game ratio of 1.44 against Newcastle and Luis Suarez scored 12 goals in 6 games against Norwich.

I believe these statistics are influenced by the positive psychological effects of an emotional attachment to playing against these teams. Although superstitions and routines may be beneficial for performance and transferrable between elite sport and intraday proprietary trading, I don’t believe an emotional attachment to a trade shares the same benefits as an emotional attachment in sport.

 

With reference to the transferrable skills from elite sport, we might consider proprietary trading as a calculated form of gambling, as less like individual sports, your performance is subject to factors outside of your control. Therefore, forming an emotional bond with a previous trade, a particular stock, or price level may be more detrimental to performance.

Learning to take a loss is integral to success as a trader, as this signifies the ability to distance yourself from the emotions of a trade and to recognise when your analysis was wrong, or when a macroeconomic factor, outside of your control, has directed the market against you. A positive emotional attachment may result in a more careless approach to analysis or a belief that the market will respond in a similar fashion to a previous trade, leading you to hold a position of loss for longer. Successful trading requires in-depth analysis of micro and macroeconomic factors as well as an appropriate strategy for each asset class, therefore, successful traders will recognise the importance of stop-losses and impartiality.

 

Dedication is an obvious transferrable skill between sport and trading. High-profile sportspeople such as Andy Murray, Wayne Rooney, and Katie Taylor show how dedication can occasionally spill over into emotional outbursts without being detrimental to performance. However, what distinguishes an elite trader is the ability to suppress emotion and redirect their passion towards analysis and taking calculated risks. 

I recently wrote an article describing how Coronavirus lockdowns have led to an increase in retail trading, and although commodities are often influenced by momentum trading, recent market movement in Gold and Silver could have been compounded by the increase in inexperienced traders. The potential for more volatile and unconventional market movements reiterates the need for emotional neutrality as a key characteristic for intraday proprietary traders.