In case you’ve been living under a rock, you’ve probably watched a clip or at least caught snippets of Roger Federer’s commencement speech in Dartmouth University.
And while his advice to the graduating class applies to life in general, some of the “tennis lessons” he shared are also very relevant in trading.
Here are three memorable quotes from his speech that are helpful to keep in mind when playing the trading game:
1. Dealing with losses
“The best in the world are not the best because they win every point. It’s because they know they’ll lose again and again… and have learned how to deal with it.“
Losing is part and parcel of trading. Even seasoned traders encounter losses or drawdowns throughout their career, but the important thing is to know how to recover from these.
Of course dealing with losses, particularly consecutive ones, is easier said than done and it takes some experience and a good deal of self-confidence to pick yourself up and keep at it. Another common danger that comes with losing streaks is revenge trading, which is likely to do more harm than good to one’s account.
One key thing to remember is to not take losses personally and to aim for progress, not perfection.
2. Expectancy matters
“In the 1,526 singles matches I’ve played in my career, I won almost 80% of those matches… What percentage of the points do you think I won in those matches? Only 54%.”
More often than not, newbie traders focus on surface-level trading metrics that don’t necessarily paint the whole picture of their performance. Some zoom in on the bottom line profitability while others just look at the win-loss ratio, potentially missing out on other factors that could improve their game overall.
In trading, expectancy matters because making money and being always right aren’t mutually inclusive. You can be on the right side of the trade more often than not, but if your winners are smaller than your losing trades, then you’d probably still end up in the red.
3. On Recency Bias
“When you’re playing a point, it is the most important thing in the world. But when it’s behind you, it’s behind you. This mindset is really crucial because it frees you to fully commit to the next point and the next one after that with intensity, clarity, and focus.“
It’s not uncommon for traders to get swept up in positive or negative emotions from a big win or loss, which then tend to influence their decision-making for their next trades.
In other words, winning trades might make a trader overconfident and feeling invincible, so much so that they bet bigger or forget proper risk management in their next setups. On the flip side, large losses can also lead a trader to double up on his positions in an attempt to make up for slump.
Overcoming recency bias is a crucial skill for forex traders because it helps one stay objective in reviewing past setups and moving on to the next ones with fresh eyes and a clearer mind.
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