I’ve been told I’m a little unusual in that I rate my trades on a scale of 1 – 5 stars depending on my reaction time (RT). My reaction time rating is merely a measure of the quickness an investor responds to some sort of market stimulus. I rate it both on the buy side and on the sell side of my trades. No, I don’t get wired up like the Dutch physiologist, F. C. Donders, started doing back in 1865 when he began measuring human reaction, but I do have my system. Stop and think about it. Your RT plays a large part in your everyday life. Fast reaction times can produce big payoffs and slow RTs can result in serious negative consequences in a whole host of daily situations.
There are many legendary examples in the annals of track and field where fourth-place finishers ran physically faster than the other three who placed first, second or third but who nevertheless didn’t qualify for the Olympic team just because of their inferior reaction times coming out of the starting blocks. With their slow reaction time, they were relegated to watching the Games from the sidelines. Most other sports require fast RTs as well. Certainly goalies in soccer and hockey are renowned for extraordinary reaction times.
My point is simply that improving your reaction time pays dividends whether in sports or investing. An important caveat might be this. Just like sprinters in a running race, you should not anticipate the starting gun. That will get you disqualified in most cases. Instead, you should react to the gun. Investors likewise should not anticipate the markets, but should instead train themselves to react to the markets.
A recent personal example happened to me on March 1, 2016. I was vacationing with my family in Hawaii and pulled the trigger on the buy side of eleven different trades. Good things seem to happen for me in Hawaii as an investor. I’ve written about this before, but let’s leave that whole discussion for another day. I rated my personal RT as five stars that day. A number of equities broke out to the upside, and I responded promptly. I was relaxed yet still focused, so my RT and execution were spot-on. Presently, all eleven positions are profitable.
In my case, what I aspire to is equal RT ratings on both the buy side and the sell side. I’m close, but not there yet. It’s the sell side where I need to continue working. It’s human nature, I suppose. When the markets get insane, I must stay calm as an investor. I remind myself that, much like playoff time in sports, the champion players always show their superior skill set when the madness and the intensity ramp up. The markets’ selling season is much like the playoffs, and I must get into the zone and amp up my reaction times.
In the investing arena on the sell side, quick reaction times might result in some pain -- a tiny loss equivalent to a small punch or bruise. On the flip side, slow reaction times or procrastinating on a trade may cause serious pain more akin to a concussion. You may be a world class sprinter or investor, but if your reaction times leave you sitting in blocks, you’ll always be an also-ran. Remember that better reaction times drive better investing outcomes.
In closing, I challenge you on two fronts. First, beware of your reaction time on every trade, and perhaps rate yourself on a scale of your choosing. Secondly, in your trading journal, ask yourself how you could have been more proactive and effective and commit to making that happen. Practice will indeed improve your RT, and this in turn will flow to your bottom line.
Thought for the week: “Action is the real measure of intelligence and knowledge.” Napoleon Hill.
Trade well; trade with discipline!
-Gatis Roze, MBA, CMT
Presenter of the Tensile Trading DVD, Stock Market Mastery.
Developer of the StockCharts.com Tensile Trading ChartPack.
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