To Win at Trading Follow Baseball, Forget Football
(My apologies to my international readers for boring you with American sport arcana this week, but stick with me I promise you I have a point)
Here are a few winning strategies in American football that almost no one uses to the full potential. One -- it’s almost always better to go for it on fourth down rather than punt. Two, a two point conversion is a much better play than field goal. Three an onside kick is superior to trying to float it into endzone every time.
This is not my opinion. These are facts borne out by data that almost football coach ignores.
That’s not the case in baseball where the science of sabermetrics has been raised to an art form. Sabermetrics is the study of baseball statistics to improve performance. The field was popularized by both the book and the movie called Moneyball which chronicled the improbable ascent of the hapless Oakland A’s from one of the worst to one of the best teams in baseball.
Now, everyone in baseball uses sabermetrics to improve their game.
So what about football? Why do coaches rely on outdated inferior methods in sport so competitive, that the best team is compelled to cheat? (Yes Patriot Nation you definitely cheated)
The answer I think comes down to sample size. Football has only 16 regular season games while baseball has ten times as many. Any single mistake in football can literally mean a season lost. Imagine a coach who goes on fourth down only to fail and have the opposing team score. The idiot fans would be screaming for his resignation on every talk radio program in the state.
In baseball things are much more lax. You have an average of 4 at bats per game, a hundred and sixty games each season so you have more than 500 attempts to try things differently. All statistics only work under the law of large numbers which by definition means that you have try the strategy many, many, many times before you can really see its success in action.
But of course most people never think probabilistically. When it comes to retail trading all is takes is three consecutive losses for 90% of most traders to abandon a strategy. That is laughably poor judgement because most traders are acting very much like dumb football coaches rather than smart baseball managers.
The only way to combat this most common and most deadly trading flaw is to trade small and trade often -- in other words do everything that conventional wisdom tell you not to do.
Here is a rule of thumb you should use -- if you haven’t done 500 trades in a given system you really can’t judge its effectiveness. Just as in baseball, in trading you need a lot of at-bats to ascertain if you are truly a pro.