Saturday, 19 June 2010

Nature Nurture

Mark Iverson wrote an interesting post, essentially about the capacity for self-improvement.

I watched the hugely interesting documentary, 'The Rise & Fall Of Tiger Woods' last night and boy was it an eye opener. I already knew that Tiger's late father Earl had crafted his career but was astonished at the lengths he'd gone too to ensure his son had the best chance of success. We've all heard of pushy parents but that guy took things to a different level! Maybe he went too far, but there's no doubting that what he did helped to create the World's greatest golfer.

The programme got me thinking. Do we all have the capacity to improve? If I'd practised for the same number of hours as Tiger, would the rate of my improvement have been as consistent and as rapid as his? The instinctive answer is no and the stock response is that we need natural talent but how do we know?
Now, Who once said, "the harder I work the luckier I get?"
I think it was Gary Player, but the quote gets attributed to Arnold Palmer et al.

For some sports, and I would include golf in this, you really don’t need any exceptional physical talent. What physical ‘gift’ does one need to be able to play darts or snooker?, but however much some of us might want to become the next Usain Bolt, most of us are doomed to failure because we do not choose our parents carefully enough and inherit an insufficient number of fast-twitch fibres. The number of people who can succeed at long distance running is much larger though. Pretty much anyone can run a marathon if they put their minds to it.

When it comes to artistic skills, I know that had my parents spent their lives pushing me to become an artist or a musician, their money would have been wasted. I just don’t have any natural aptitude for art or music, and no amount of time or money would change that. (Speaking of music, and nature, I read yesterday that officials in Belarus have asked for tapes of previous concerts before they will let Elton John perform in their country. They want "to make sure he doesn't try to convert audiences to homosexuality". Seriously. Do people in Europe still believe this shit?)

Moving on - when it comes to trading, Mark asks “
Am I succeeding at trading because it suits my personal attributes, because I work harder than others or a due to a mixture of both?

One thing I can say is that you can't beat attention to detail, and after investing more time this year analysing my performance and studying the game if cricket it seems to be paying off.”
To be a successful trader on the exchanges, my view is that you need the following skills, and to some degree all of them can learned or improved upon if you are prepared to put in the time and make the sacrifices which are neceessary:

A fundamental understanding of mathematics and statistics

A liking of sports and knowledge of the rules

Discipline and patience

The ability to make instant decisions under pressure

An understanding of the psychology of trading

Other aspects of your life in order – the support of family

In more detail, you need to understand the mathematics behind it for a start, and as easy as that sounds to those of us who have done this for a while, not everyone is able to get the hang of it, or at least not to the point where they achieve a comfortable level of familiarity with the interface and understand what the numbers mean in terms of probability.

You need to understand the sports, and to understand a sport, you probably need to enjoy it first, although that’s not necessarily true. Basketball is an example of a sport that I had very little interest in pre-exchanges. Watching the markets and how much money was available was what drew me to that game, but for most sports that I trade, I had a fairly good knowledge of them for several years. The importance of knowing the rules may seem obvious, but reading the Betfair forum, it's quite amazing how little some people know about a sport or a market before betting on it. "What are the overtime rules" is a good one. Or, "Does the totals market include points scored in overtime"?)

Some sports we grow up playing, and we know them pretty well, but others (for most of us the US and Australian sports perhaps) we have to learn from an older age. They all have their quirks. How, and when, time-outs are used is just one example. Rules vary within sports too. I had no idea before I got into baseball that the rules were different in the American League from the National League, and in American Football, the rules in College games are different from the professional game, and the Canadian version is different yet again! College and professional basketball have differences too.

Discipline and patience are a must. If you’re the type of guy who needs action every day, then you are going to bet when you don’t have value. You’re going to chase when things go wrong. You also need the discipline to keep accurate records and spot what might not be working any longer, or what might be working better than before. Trying to convince yourself that you have an edge as many gamblers do, when they don’t, isn’t going to help anyone. You also need patience when starting out. It's not like picking money up from the street.

Coping with pressure can be difficult, especially when you’re liability is large and the market is moving away from you, but it’s an example of something that can be learned and for me it’s still something I need to improve on. I try to focus on the big picture and keep losses in perspective. However much I might lose on a bad night, it’s really insignificant in the whole scheme of things. I’m playing with house money, and it’s a small percentage of net worth. I learned that losing a couple of thousand on the betting exchange wasn’t any different at the end of the day to losing a couple of thousand on the stock market. Yes, it was the result of a decision or decisions that didn’t work out, which is annoying, but if you have that all important edge, it’ll come back with interest. Do we stress when our house drops in value?

There are many books on the psychology of trading. I read some when I got into futures and options trading, and I read them again when I got into the betting exchanges. You need to know your markets and learn which of the two elements of fear and greed are driving the market, and when that might change. I also highly recommend the book “Blink – The Power of Thinking Without Thinking” by Malcolm Gladwell.

Trading is a lonely activity. I am lucky that I have stumbled upon this form of trading at a time in my life when my kids are grown, and I have a steady job, a calm home life with a very supportive fiancée who makes me tea, and knows when to stay quiet, and who has never, ever, asked about wins or losses or complains about a rather quiet social life. Maybe I should marry her? Oh, I am. Seven weeks from today!


Curly said...

I am surprised you didn't point out that these 'skills' alone aren't enough. Without a quantifiable edge they will only, at best, slow the bleeding.

Given you trade predominantly in-play do you use any trading software? Software doesn't replace the need for an underlying mathematical knowledge, decision making and an understanding of trading psychology but it does allow you to act on your decisions quicker.

If you can't make money without the software its doubtful you can make money with it. However if you are trading in a fluid market it doesn't make sense not to have some form of trading software available (even if its only Betfair Rapid).

Mark Iverson said...

Correct Roberto....Gary Player was the answer!

Thanks for the mention mate and for what it's worth I bought the audio book 'Blink' on your recommendation a while back. Found it interesting and have no doubt that Tiger relies on many things that the author mentions.

All the best,


Cassini said...

Curly - I did say "but if you have that all important edge" -but I would hope that any readers of this blog already know they need that. I do go on about it a little.

Personally I do not use any software. Never felt the need for it. Does it really help?

Mark Iverson said...

Still can't believe you don't use software - you would have hit that 500k figure by now if you were ;-)

Download the Toy - it's free.


Curly said...

Never traded basketball but having watched it in the past a team could score a 3 pointer, turn the ball over (correct expression?) and score an easy 2 in the space of 4 or 5 seconds. In this kind of scenario I should have thought that the speed difference here would determine whether you'd get in or out of a position at value (and both are probably just as important).

Ofcourse I have no idea how delayed your pictures are and if they're 6/7 or more seconds it might not be so important anyway.