Article 2 – Trading vs Golf Articles & Webinars Series
Managing Change/Dealing with Adversity
The Open - The Most Natural Golf Courses - 19-22 July
The On-Course View
The Open is unique as a Major Championship, in that it’s played in the British Isles on Links courses. Links courses are the oldest type of golf course and due to their unique features require their own style of play. If a player is to prevail he must be both durable to change but also resilient to the many and varied challenges that he will face.
Links courses are characterized by being located in close proximity to the sea, often on sandy dunes with thick rough and pot bunkers. Their rugged and undulating natural surfaces are in stark contrast to the heavily manicured surfaces of the parkland style of golf courses popular in the USA. On Links style golf courses players must take nothing for granted as their natural surfaces can produce a multitude of awkward lies and bad bounces. It’s one of the many reasons why golfing enthusiasts describe links golf as the purest form of the game.
Probably the most difficult and variable of the challenges that Links golf presents is the Great British weather! The coastal weather conditions can vary dramatically from one hour to the next - not to mention morning to afternoon! Players can tee off in the most benign of conditions and finish their round in high winds and rain. The morning field can play without a drop of rain whilst players in the afternoon field can play in torrential rain and wind, only for the reverse to happen on the following day. An unlucky draw may mean certain players may have no realistic chance of competing simply because the conditions they play in vary so much compared to players who tee off on the other side of the draw.
Players have to adapt their games to suit the conditions. Where they can normally flight the ball through the air and attack flags using a combination of height and spin, often on links courses they can do neither. The hardened sandy surfaces ensure that approach shots need to be played in low and rolled up to the flag using the contours of the land. When the winds are high players need to adapt by flighting low accurate shots to avoid the wind.
As many of the finest golfers in the world do not regularly play in these conditions, adapting to them is a challenge. They have to move away from their traditional and instinctive ways of playing and embrace a new way to play. Therefore, those that are the most amenable to change and who accept the adverse and on occasions unfair challenge the links presents will be best placed to thrive.
When it comes to dealing with change and adversity, the most valuable skill a player can exercise is to adopt the appropriate mindset. The greatest challenge links golf presents is psychological. Primarily due to the fact that a poor shot or a mistake leads to a significant increase in difficulty or complexity of the next shot. A poor shot can lead to a chain reaction of ever more challenging shots and so the burden of not making an error or hitting a poor shot is significant. The worse the conditions, the greater the margin of error and also the greater risk of an even more difficult following shot.
As six time Open Champion Harry Vardon observed over one hundred years ago “There are two types of player, ones that hold their nerve and win tournaments and those that don’t.” Players who are able to focus on “controlling the controllables” , playing one shot at a time and avoid getting distracted by factors outside or beyond their control are most likely to succeed.
The process of controlling the controllables in essence means that the player is process-focused meaning that they are able to discipline their minds to focus solely on the specific requirements of the shot at hand. They don’t allow their mind to drift onto the many and varied potential outcomes of any one shot or its potential affect on their performance as a whole. This type of thinking leads to excess worry and anxiety which on a links course in challenging conditions can be psychologically and emotionally draining.
The different conditions and the types of shots and surfaces Links golf is played on all present the players with reasons to doubt themselves, to second guess their shot selection or create doubt when committing to executing their shots. For this reason, Links golf is one of the finest training tools for the elite golfer. For players to thrive in this type of golf they have to be able to make clear and reasoned decisions when selecting a shot and then create the space mentally to be able to fully commit to the execution of the shot. Once the shot is played they then have to accept the result of the shot and to psychologically and emotionally deal with the outcome before reaching their ball and starting the process all again!
The ultimate challenge of Links golf is on the players' process. Will it endure when subjected to the most natural of conditions? Will it be able to deal with the many and varied challenges that winning the coveted Claret Jug requires? Or will they succumb to an outcome-focused thought at an inopportune moment? This can creates waves of excitement, anxiety and tension which build and build over successive shots until the storm of emotion becomes so intense that it robs the player of their chance to etch their name on the Claret Jug and into golfs annuals of fame.
“To play well you must feel tranquil and at peace. I have never been troubled by nerves in golf because I felt I had nothing to lose and everything to gain.” Despite the challenges and intense pressures Harry Vardon was able to adopt an appropriate mindset which enabled him to believe that no matter how challenging the conditions became he was in himself tranquil and at peace. In essence he controlled what he could, his own psychological and emotional state and as such was able to endure when others could not. These skills enabled him to capture six Open Championships and ensure that over one hundred years later we are still learning from him.
The On-Market View
One of the biggest factors that could impact the performance of a pro-golfer, as mentioned above, is the environment (the golf course) as well as the weather conditions. To be successful in managing these unexpected conditions, a pro golfer has to be both durable to change, whilst being resilient to the many and varied challenges.
For a trader, he wakes up in the morning in need to firstly understand his own environment/weather -the market (Market Psychology/Sentiments). In addition, he need to be aware of the economic or political storms ahead, that could potentially pose opportunities or risks. For a trader, as it would be for a golfer, being durable to changes in the markets has a lot to do with the trader’s understanding of whether it is a Risks-On or Risks-Off environment. By being aware, firstly, of which type of a market sentiment he could be trading in, will assist in being in the right mindset, by pre-selecting the appropriate strategies and set-ups (Tools, as if were the right Golf Clubs) in order to be more psychologically or mentally prepared in facing the challenges ahead..
With respect to economic weather conditions, 4 major themes are expected to challenge traders in anticipation of an increase in Risks and Volatility. Whether in the market or on the golf course, this summer will be challenging in testing the resilience of both golfers and traders, as it all boils down to the power of focus. A trader will be able to be ‘in-the-zone’ if he is equipped consistently, with the right mindset.
The weather for the Global Financial Markets is expected to be gloomy with four major themes dominating the overall trader/investor sentiment, as follows:
1) Trade Wars and Protectionism
U.S. President Donald Trump continues to insist that a trade deficit is a loss and that while exports are good, imports are bad and trade deficits are bad. At present, friction between the United States and its trading partners such as China, the European Union, Canada and Mexico is intensifying. The Trump administration is steadily moving its protectionist agenda forward.
2) Political Climate in Europe
The tumultuous European Union summit on June 28 over the issue of how to address the question of migrants to Europe has sent ripples across the continent, with some saying Merkel had "broken the EU."
It’s appearing more apparent that the EU has to prioritise in harmonising its own initiatives and capability plans with those of NATO, especially the NATO Defense Planning Process. This could help avoid the duplication and the potential undermining of NATO’s defense and security role. It is a difficult balancing act, and one that the EU has overcome and potentially a delay in finding solutions could cause upheavals both politically and economically.
3) Relative ECB – FED Policy Outlook
The ECB announced last month that it will end net bond purchases this year, but also that interest rates will stay unchanged until "at least through the summer of 2019". The wording was generally interpreted as leaving open the possibility of increasing borrowing costs at the September meeting.
There are many monetary policy rules that will recommend a level of rates for different economic conditions. The Fed doesn’t strictly follow any of them, but consults several. The first-difference rule is distinct for not relying on any of the unobserved variables that vex Federal Reserve chairman Jerome Powell, making it, as Williams and Athanasios Orphanides wrote, "immune to likely misperceptions in these concepts."
4) Relative EZ – US Growth Outlook
The European Central Bank’s chief economist highlighted growing signs of strength in the Eurozone economy and on June 14, it hinted a possible taper on its bond purchase programme from €30 billion ($35 billion) a month down to €15 billion a month in September. The decision by the US to raise tariffs on imports of steel and aluminium could help protect US jobs in this particular area, but it will also raise costs in the areas of the US economy such as in; metals, like auto, construction and manufacturing. Ultimately, this could mean higher prices and higher inflation which in turn will hit the US consumer which at the moment, despite a tight labour market is only seeing modest wage growth.
Bad investor habit armed with market temptations of all sorts, tends to disrupt long-term portfolio success of traders, especially in times of turbulence and market adversity.
Here are three main pointers that could assist traders in trading well and dealing with the adversity, whilst keeping calm and collected:
1. Have a Trade Plan
The benefits of a Trade Plan shouldn’t be underestimated. Try focusing on your short, medium and long-term goals with a trading strategy/system that fits in with your Trader Style/ Type. By doing this, you could greatly increase the chances of staying within the range of your ‘Risks-appetite / exposure’ during times of heightened volatility.
2) Turn volatility into opportunity
It never feels good to see the level of your drawdowns appreciating especially, in times of high volatility. This scenario could be well anticipated while having a game plan well in advance. By understanding that volatility is natural and treating it as an opportunity, adding capital to your portfolio during times of downward pressure, you’ll likely be rewarded over the long term. Ensuring sufficient capitalisation is key in times of adversity. Better yet, if you continually and systematically contribute, you can weather market volatility by executing fewer trades when the market is high and execute more trades when it is low. This strategy helps take emotion and guesswork out of your trading equation.
3) Make your Goals your Main Focus
Focus on your goals. it’s easier to block out short-term noise by concentrating on what you’re trying to achieve over the long run. This will never be an easy task, particularly when the media seem to be shooting out negative ‘breaking-news’, as frequent as you turn on the TV . Negativity bias causes people to instinctively focus on negative news, rather than positive. This makes sense, from an evolutionary standpoint: In the world of financial investments, this instinct can cause you to potentially overestimate the risk you may be exposed to, which in turn can lead to emotional rather than rational decisions. By staying focused on your goals and the right strategies that fits you, it makes volatility more acceptable and manageable.
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