Author: Joe Lee / Jack Trading Academy Instructor
Hello everyone, the easiest and most profound way to learn trading is to study it as a hobby. If you still find it difficult and boring, you can also try to practice in some real situations. Finding similarities between interest and trading is also the core idea of this series.
We have talked about the relationship between trading and basketball before, but in fact, in Mr. Joe’s mind, the ball game that is closest to a trader’s daily life is baseball! In mainland China, baseball is not a particularly popular sport, but in Taiwan, baseball has always been one of the most popular sports. Every major event is attended by thousands of people. Watching baseball games is something I have always loved. For entertainment, today I will use this episode to talk to you about the similarities between baseball and trading!
Batting average and slugging vs. winning percentage and profit and loss ratio
In the world of baseball, the most direct way to measure a batter's performance is to look at his batting average, which is the probability of successfully hitting. . (Number of hits/number of at-bats)
If you don’t know much about baseball, you might as well take a guess, at what level does a hitter usually have a batting average that makes him a pretty good hitter?
0.300. (30%)
Yes, generally speaking, if can have a batting average of more than 30%, it is already a very good hitter. , there are only a handful of professional baseball players in the world who can achieve a batting average of 40%. The legendary Japanese star Ichiro Suzuki, who is famous for his batting average, has a 19-year career average batting average of 0.311 in the American major leagues, with the highest year being 0.372. The most famous representative of Taiwanese professional baseball, Peng Zhengmin, has set a career record of 30% for 16 consecutive years. His batting average record is close to 40% in his best seasons, which is already a monster level. His career average batting average is also 0.333.
In other words, no matter how powerful a slugger is, the probability of a strikeout is still higher than the probability of a hit. This is consistent with what Derrick, my boss at T3, said : "The most successful traders are the most professional failures." Bearers, they have a high probability that the number of stop-loss transactions in their lifetime will be far more than the number of profitable transactions, but they can still achieve stable profits." coincides with this.
Many people blindly pursue a high winning rate when doing transactions, which results in their unwillingness to accept losses and return to their original shape due to the failure of one or two transactions. The winning rate of many professional traders is below 40%. Being stopped is a common occurrence, but they can still achieve stable profits. relies on the power of "profit and loss ratio" , and in the world of baseball, It’s the concept of “long play” !
Hits are divided into singles, doubles, triples and home runs! The further your hits go, the more bases you have the chance to hit and score a home run! Is
similar to the concept of profit and loss ratios of 1:1, 2:1, 3:1, and 4:1 in trading?
But the more you pursue home runs, the lower the batter's batting average will be. Just like the more you pursue a high profit-loss ratio, the winning rate of the transaction is bound to decrease.
Babe Ruth, the God of Baseball, once said a very domineering saying:
"It would be easy for me to have a lifetime batting average of over 40%, but then I would have to hit a home run, and people would pay to do it." The ballpark is for watching me hit home runs."
*Note: Babe Ruth hit 714 home runs in his career, with a batting average of 0.342
Screening good and bad balls vs. Screening good and bad trades
A hitter stepped up to bat. Zone is a game of wits and psychology between the pitcher and the pitcher.
Pitchers use a variety of fastballs, changeups, and high-low combinations to confuse hitters.
As long as three good pitches are thrown, the batter will be out, but if four bad pitches are thrown, the batter will be walked.
The batter's task is to pick as many good balls as possible to attack, and try not to be tricked by the pitcher into hitting bad balls, because if the swing misses, a strike will also be recorded.
A good shot is easier to hit, just like a good trade that meets the definition is easier to succeed; however, many traders often rush into the market because they have no positions in hand and settle for some transactions of average quality.
This is very similar to a hitter who frequently chases bad balls. Even if he can occasionally get hits, his long-term batting performance will definitely not be ideal.
Then the following four situations can be listed:
The batter picks good pitches to swing the bat and gets a hit=The trader selects the good pitch and enters the market smoothly and makes a profit=The best situation A
The batter picks the strike pitch to swing and finally gets out=Trade The trader selects good trades and enters the market with final stop loss = Reasonable risk B
The batter picks the bad ball and swings the bat and gets a hit = The trader enters the trade with a smooth profit = The most dangerous C
The batter picks the bad ball and swings the bat and finally gets out = The trader enters The final stop loss of the market difference transaction =It is natural that D
Before swinging/entering the market, no one can be sure whether it will be successful or not. What batters and traders can do together is to choose good balls/good trades as much as possible. Attack, if it succeeds, it is the best situation A. Even if it fails, it is risk B that you are willing to take from the beginning. Don't forget that a 30% batting average is already a good result!
The most dangerous thing in this process is C. Chasing bad balls to cause hits or placing random orders will make a small profit, because it will form a terrible reinforcement. allows you to "continue to chase bad balls next time/place randomly." "Single", you must stay vigilant!
And D is the best punishment for those who break the rules, so that you will remember to try not to do it next time.
Of course, pitchers on the court will do whatever they can to make their bad shots look like good shots, just like there are still many false signals, false breakthroughs, etc. in the market.
But as a trader, the most important thing is to try your best to make every transaction you make comply with your own entry rules, and then do it one by one, and let the law of large numbers finally tell you your transaction results, and whether rules and strategies need to be modified.
Every hitter on the baseball field is actually going through a very similar psychological activity and evolutionary process. This is why Mr. Joe said that baseball is the sport most similar to trading!
After typing here, I found that the length is already a bit too long, so this episode will end here. You are also welcome to try and experience the fun of baseball below. I will come back in the next episode and talk to you about the following two, which are extremely similar to trading. Points:
(3) Three outs per inning vs. daily loss limit
(4) All tactics and decisions are about risk and reward
Stay tuned!
• end •
Source: Jack Trading Academy (ID: traderedu), Author: Joe Lee. Original article, welcome to share, please do not reproduce without authorization.
