Why Hedge Fund Trading Is Not Like a Competitive Sport

Despite the many sports metaphors used in covering hedge fund trading, it turns out that trading is not like playing a competitive sport at all. At least that’s the opinion of noted sports psychologist and Wall Street trading coach Dr. Doug Hirschorn, Ph.D., interviewed recently by Minyanville.

Hirschorn had a passion for baseball back in his Colgate University days, until an injury sidelined his ball playing career for good. He then got a job on the trading floor of the Chicago Mercantile Exchange in the Euro Options pit. Later, he moved to online trading and then pursued an advanced degree in sports psychology at Southern Connecticut State. He made the leap to what was essentially a new field, “trading psychology coach” after working on his doctorate in sports psychology at West Virginia University.

“The job didn’t really exist so I was planning on creating it for myself. After my first year at WVU, I was offered a job at a large proprietary trading firm in NY to be their trading psychology coach. I left WVU and I moved back to NY. It was a risk and I was pretty scared,” Hirschorn says.

His gamble paid off. Today, Hirschorn is on retainer as the trading psychology coach for several major banks and multi-billion macro and fixed-income hedge funds. He appears frequently in media interviews for CNBC, CNN, BLOOMBERG, FOX, and TODAY. And now focuses on improving the performance of elite traders, large portfolio managers and principals at hedge funds.

A snapshot of the lessons he’s learned and teaches:

– Making money is easy, keeping it is hard
– You can have a 1000 reasons to get in a trade, but you only need 1 reason to get out
– Focus on the process (quality of your trades), not the outcome (profits/losses)
– Know what your edge is (what your pitch looks like) and trade only when you have edge (swing only when your pitch appears).

So why is trading so different from competitive sports?

In sports, says Hirschorn, you’re NOT supposed to think about negative outcomes like, “what if I mess up this shot?” In trading, that kind of thinking is necessary. It’s called risk management. In sports, when you miss a shot, you don’t lose points. In trading when you miss, you lose money. Sometimes big money. In sports, both you and your opponent are constantly adjusting to each other’s play. In trading, the markets don’t care a hoot about you or necessarily what you do. And finally, in sports, if you get poor results, you practice harder, put in more time. In trading, extra time and effort does not always correlate with improved performance.

Anyway, the interview with Doug Hirschorn has many other insights into what makes a successful hedge fund trader. It’s worth reading in its entirety at Minyanville. In the meantime, how much does psychology or emotion affect your trading, in your opinion? And how have you managed to improve your trading psychology? Add your comments below.

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