Trading Is Like…Flying a Plane?

04/18/2012 3:35 pm EST

Focus: TRADING

Evan Lazarus

Editor, Wyatt Investment Research

Traders can sometimes learn from the most unlikely teachers, explains Evan Lazarus, citing a recent meeting with a pilot who discussed the use of data for more confident decision making.

Evan Lazarus from T3 Live is my guest. He's got an interesting story about trading and some analogies with another industry. Evan, talk about what you learned.

Every year I come to the Traders Expo, and I always find one or two people who give me great insight about trading. Even though I'm the professional and I'm the educator, it's a very, very smart crowd, and that crowd has a lot of information to share.

A gentleman who I was speaking with said to me, "Do you fly an airplane?" I said "No, I don't. I have never flown an airplane, never gotten into a cockpit; I have never done anything like it."

He said, "Because trading is just like being an airline pilot." I asked "How so?" and he said, "Well, as a pilot you rely on your instruments. You are constantly looking at your data points. You're looking at your wings and your nose tip, and your whole dashboard in front of you, and you're making decisions about what you should do."

"Let's say it's foggy out and you can't see the runway; what do you do? Do you just hope for the best? No, you rely on your instruments, and you have to know how to use those instruments very, very, well."

I found that was a great story, because I deal with a lot of traders, and most of them operate on the premise of hoping, wishing, and praying, or they operate on the premise of impulse. They feel like they need to be in something, so they just buy it or they sell it with no real thought process or structure behind what they are doing.

See related: How to Overcome Overtrading

I will say to those traders going forward, "Would you fly an airplane like that? Would you take off and hope for the best, or say, 'I hope the runway is over there'?"

It was such a brilliant analogy, and I think it just sort of opened my eyes a little bit. I am going to use it going forward, to be quite honest.

I find way too many traders fail not because trading is hard or because of the stock market; it's because they don't know how to use strategy, and they don't know how to use the appropriate dashboard.

They never spend the time to focus on the process; they spend time focusing on the results. I think that just makes for a great way to look at trading without talking about moving averages and candlesticks and the traditional stuff.

And yet would you agree that gut feel does play a certain amount into the success of traders? So what would you say is the right percentage of gut feel and learning the market and monitoring your instruments?

Feel comes with time. You can't have feel without having spent time logging hours in front of this market-hundreds or thousands of hours the way a pilot would sit in a simulator for hundreds, if not thousands of hours-before they even know what feel is like.

I think feel is a very, very important part of trading, but you don't just get feel. You're not going to go to a bookstore or take a class and say, "Oh, I now have a feel for the market."

I have been trading for over 15 years, and I have feel. I have seen different market environments, different conditions like bull markets and bear markets, and I know what they are like. I know the dynamic behind them, but if you put me in a cockpit tomorrow, I wouldn't have any feel for how to fly a plane, so I think feel is one of those things that come with time.

You can't teach it, but ultimately over time, you need to learn your instruments. You need to learn your strategy, and you need to learn your structure, and then, once you have those down pat, feel will evolve over time.

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