Morning Market Thoughts

Good morning. Futures are quiet this morning with a slight downward bias as we start a week in which 70 of the S&P 500 companies report earnings. The major averages remain in a trading range, and that’s likely to continue until traders get more information in the form of earnings guidance.

Now, some random thoughts on yesterday’s Super Bowl, and the various similarities and differences between football and trading:

First, there are 60 minutes in a football game. Irrespective of when you score a touchdown during these 60 minutes, you get 6 points. But the clock is ticking. When the clock runs out, the game is finished. The team with the most points wins. Period. And at the end of the season, the Lombardi Trophy is awarded (usually to the Patriots), and players take a rest for a few months. Then, a new season begins and everyone starts on equal footing.

In trading, it’s different. There is no clock. You trade for the rest of your life. You have no opponent. You aren’t competing with anyone. Rather, your biggest challenge is mastering yourself and maintaining some consistency. There is no “new season”. There is no “next year.” Your trading account doesn’t know seasons; rather, it will grow or shrink based on your consistency. You accumulate “points” by accumulating dollars. And, unlike sports, the dollars you make in trading are yours to keep. The other team can’t outscore you. Rather, you can either keep those dollars and build on them, or you can give them away through poor trading and excessive risk taking.

And speaking of risk taking — the Super Bowl was the most dramatic game I can recall ever seeing. Truly one for the history books. The Patriots scored 31 unanswered points to win 34-28. They had 3 points, and wound up with 34. That’s a “return” of 1,000%. Do you think you can ever achieve that type of turnaround in your trading? No! Your trading should not be dramatic. It shouldn’t be thrilling. Rather, it should be an exercise in consistency, if not downright monotony.

Thrill seeking does not mix with trading. Consistency is what you strive for. Develop consistency and avoid excessive risk taking, and you’ll be in the game for a long time. You’ll have a great career. And ultimately, you won’t need a Lombardi Trophy to validate your success. Your account statement will say it all.

–Dan

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