The Big Miss

by Tyler Craig on June 11, 2012

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My new daddy duties of the past two weeks have been punctuated by readings of Hank Haney’s illuminating book on his 6-year coaching regime of Tiger Woods.  I discovered more than a few trading parallels of note in The Big Miss.  Here’s perhaps the most revealing one:

There are very few perfect shots hit in golf, even by experts.  It’s above all a game of managing misses.

Tiger’s perpetual fine tuning of his swing and marathon practice sessions were performed with the intent of minimizing the chances of big misses.  The type of duck hooks or mega pushes that yield double bogeys or worse thereby taking him out of contention.  It wasn’t the eradication of misses that was the goal, but rather the controlling of said misses.  The concoction of a formula that effectively banished big misses led Woods to be in the running for “the big W” in tournament after tournament.

No doubt we could say the same of trading.  It is above all a game of managing misses.  Avoiding the big loss at all costs.  The essence of this is captured by the popular trading adage espoused by the everyday trading educator:

Maximize your gains and minimize your losses.

Of particular import in the dual mandate is that of minimizing losses.  While one may get away with failing to maximize gains, the inability to cut losses inevitably brings a swift end to one’s trading career.  The successful avoidance of “the big loss” is a byproduct of a number of trading techniques: possessing a trading plan, implementation of risk measures, usage of stop losses or hedging, and time diversification.

While each successful trader blazed their own trail in the world of the financial markets, the one common thread tying them all together was their ability to master the art of managing misses.

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