15 March 2021
This write-up comes after some thoughts I've had recently about the similarities between trading and fishing and how to draw a metaphor between them. These thoughts were also reinforced by a podcast I listened to over the weekend with trading performance coach Steve Ward where he made the same comparison.
Why do I say that trading is like fishing? Here are the comparisons as I see them:
Fish the right waters
Successful fishermen develop an understanding of where the fish are likely to be. This comes through experience and understanding different water conditions. In trading, I'd say this is like scanning the whole market and understanding where there is movement in different sectors or industry groups.
We often talk of relative strength among sectors in our analysis. If you can correctly identify the direction of movement in the sectors, then you're giving yourself a far higher probability of success if you can align your trade with the direction of the sector.
Identifying the right sectors to trade in is the equivalent of identifying where the fish are likely to be. Instead of just randomly throwing your line out anywhere and hoping to catch a fish, you use a fish finder and go to where the fish are.
In trading, you want to identify those areas of the market where there is action in a particular direction and focus your trading in that area of the market. Doing so will give you a far higher probability of "catching a fish".
Use the right bait, lure or fly
When fishing, you need to know what type of bait, lure or fly to use for different types of fishing. You wouldn't use a tiger fishing lure when fishing for trout in a flowing river. In trading, I liken this to the type of chart patterns you're looking to identify for high-probability trade setups. In a trending market, you'll look for continuation patterns to try and hop on board a trend.
In a choppy market, you'll rather want to look for lateral support and resistance levels and wait for reversals off a support or resistance level. Knowing the type of market environment you're in is important as you can then apply different approaches to your trading in accordance with the environment.
It's also important to realise when the environment is changing and to adapt accordingly.
Also, know that YOU need to adapt the bait, lure or fly you're using to suit the fishing conditions. Not the other way around. The fish are not suddenly going to start changing what they bite on to suit you. You need to be adaptable. This is the same in trading: the market conditions won't change to suit you. You need to change your approach to suit the market conditions. Be adaptable.
Keep throwing the line out, but be patient
Any fisherman will tell you that the number of casts you throw out is far higher than the number of fish you catch. You're not going to catch a fish with every cast. It's very similar to trading. You need to realise that not every trade you make will yield a positive result. I'm following a successful forex trader who posts all his trades on a Telegram group, and this is very evident from his trading.
He makes a lot of trades (all carefully thought out), but lots of his trades get stopped out for a small loss. That doesn't stop him from taking the next trade setup, and the next and the next. Every now and then, he catches a big move and chalks up a decent-sized winning trade. And occasionally, he manages to catch a very big move, but these are infrequent.
The point is that you have to keep throwing the line out to catch a fish and be accepting that every time you cast, you're giving yourself the opportunity to have a fish bite on your line. If you don't throw the line out, you definitely won't catch anything.
As in trading, you need to continue identifying setups and trading those setups when they fit your playbook criteria. Not every trade will work out. You may see a lot of small losses and small wins, but if you show up and trade your plan, you will catch a big winner every now and then.
It seems quite common from my own experience and from many successful traders I speak to that their year's performance is often attributed to a few big winners, interspersed among a lot of small winners and losers. But the important thing is that they continue to trade their plan and take every trade that fits their criteria.
When you've hooked a fish, make sure it doesn't get away
Once you have a fish on the end of your line, it's important to keep the line tight so the fish doesn't spit the hook out.
This is the equivalent of managing a trade once you have it on, and you can see it's a winning trade.
You very often know when you have a fish on the end of your line, whether it's a big one or a small one. You can feel it in the way it tugs on your line and the strength with which you have to reel in.
This is similar to trading. Enough experience often gives you a hunch of when a trade is going to be a winner. We often make the point that the best trades begin to show a profit quickly. That's the equivalent of knowing you've got a bite at the end of your line. The next step is to then make sure you bring the fish in carefully and don't lose it.
"In trading, you need to manage a winning trade and make sure it doesn't turn into a loser."
You also need to be careful of not being too greedy when you have a winning trade on. Managing your emotions is important. You won't go around high-fiving your mates while you are trying to land a big fish. You'll be focused on the job at hand and try to land the fish without it getting away. Managing your trades from start to finish is vitally important.
Land the fish
Getting a fish into the net is a massively rewarding and exhilarating experience - particularly when it's a big one.
After that comes the weighing and celebrating. This is the equivalent of banking profits on a winning trade.
You can measure your winner afterwards and celebrate afterwards. Banking profits is important along the way.
There's a saying that you should cut your losers quickly and let your winners run. That's a good philosophy for a trending market environment, but it still pays to bank profits along the way and keep the scoreboard moving forwards. Know when it's time to "land the fish" and bank profits on your winners before they get away from you.