You can learn a lot of trading lessons from the world of horse racing.
Because fortunes can be made or lost in moments. But if you know your horse and you understand the subject intimately, you will have a much higher chance of getting it right and winning.
I’m talking about understanding and having access to the right statistics, systems and insights.
Here’s what I’m talking about…
Trading lessons: Know Your Horse, Know Your Market
In horse racing, the key to success lies in choosing the right horse.
This decision is based on a variety of factors:
• Breed
• Form
• Characteristics
• Race conditions
• Height
• Weather
• Ailments
• Other pivotal factors
Professional bettors really dig deep into these types of aspects.
And this way, they are able to calculate which horse has the highest probability of winning based on past performances.
This is similar to trading.
First you need to learn what trading style suits you best.
Time frame
Are you looking to trade as a:
• Position trader
Look at longer time frames (Daily and weekly and hold for a few months.
• Swing trader
Where you trade smaller time frames (4 hour – daily) and you hold for a few weeks.
• Day trader
Where you trade even shorter time frames (5 minutes – 30 minutes) and hold for a few days.
• Intraday trader
Where you trade even shorter time frames (1 minute to 5 minute) and you hold for LESS than one day.
Markets
Then you need to know what markets you’re looking to trade?
Stocks, indices, forex, commodities or crypto?
Trading systems
Will you incorporate price, volume, indicators or a combination of both?
These are some of the aspects you’ll use to find the perfect trading system that suits you best when you trade.
Every market, like every horse, has its own personality, movement, patterns, and style.
To thrive, you as a trader must:
Know your market inside out
Ensure the market aligns with your trading system and portfolio over time.
Then you need to know how to pick the right time and market environment before making a trade.
That’s just the system.
Next, we need to look at:
Diversification: Spreading Your Bets
Experienced bettors rarely put all their money on one horse.
Instead, they spread their bets across multiple races and horses to reduce their risk.
This strategy of diversification is very important in trading.
This is where you should diversify your investments across different accounts, markets, sectors, instruments, and types.
And this will help you to protect your portfolio against unforeseen downturns, drawdowns and freak anomalies.
For example. I like to have three trading accounts when allocating my trades and funds.
One for Forex.
One for indices
One for stocks.
When you have three different accounts (brokers) for different markets – you’ll be able to manage, monitor and track your portfolios accordingly.
Like they say, don’t have all your eggs in one basket.
This goes the same with not having just one horse to bet with and one market to trade with.
Allocate different horses and trades to hedge and diversify your bets and trades.
Trading Lessons from the Track
As you can see there are just a couple of lessons we can learn about trading from horse racing.
But there’s another one to consider
The track conditions…
For example, a muddy track can slow down a fleet-footed thoroughbred.
While a dry, hard surface might favor those with sheer speed.
These extra forces help bettors to adapt their strategies to select the right horses that perform best under specific conditions.
The same with markets…
Think of when a market is trending up or down…
That’s where we want to jump in and ride the wave (trend), as much as we can.
We do this by adopting technical indicators like:
• Moving Averages
• Bollinger Bands or even
• Trend lines.
As long as the conditions are strong, we will continue to hold and profit from the ride up or down.
At the end of the day, both horse racing and trading are about making informed decisions based on…
Probabilities.
If you’re able to adopt the lessons described above into your trading, you’re much more likely to succeed.
