5 lessons traders can learn from the world of sport

Posted: 19 January 2022 10:00 am
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Professional athletes and the everyday trader have more in common than you think.

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CFDs and forex are risky investment products and most clients lose money trading. Consider whether this is right for you before making a decision.

Both professional athletes and investors need to have strong plans and reduce emotions in order to get ahead.

Here are 5 investment lessons you can learn as an investor from the world of sport.

What is a CFD?

But before we get started let's explain a few things.

This article largely relates to CFD products.

A CFD (contact for difference) gives traders a vehicle to build an investment position on both the up and down movements of the market by speculating on a future price. This is the key difference between a CFD and other investments, it allows you to speculate on prices in either direction.

A CFD holds the same price as the underlying asset, but does not actually own the asset.

Take shares in company X for example. If it was trading at $1,000 per share and you thought the price was high, an investor could enter a CFD that took a position against the company.

If company X fell to $900 the investor would make the difference or in this case $100. However, if company X went to $1,500 the investor would owe $500.

Platforms like TMGM offer CFDs across a wide range of financial products including shares, forex, commodity and crypto markets.

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High probability plays

If you're familiar with tennis you'll know the importance of serving into the corners. Hitting the ball either wide or down the line allows for the server to set up the point, increasing their probability of winning it.

Unsurprisingly, the same concept applies to investing.

While some outlier stocks may get the headlines, like during early 2021's GameStop saga, investors who take this approach reduce their chances of success.

Instead, investors should take a lesson from serving and look for stocks with a high probability of success. Look out for companies that have a long-term track record of success, over various market cycles, that are still growing.

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Game planning

Having a game plan can be the difference between success and failure. After all, how can an athlete be at their best if they are not prepared?

It is the same with trading.

Every investor should have their own game plan: knowing what they want to buy, the reasons behind the trade and the numbers that suggest going long or short.

However, just like in sport, things can go wrong and investors need to adjust to the momentum of the market.

For example, before the COVID-19 pandemic, the stock market was largely bullish. Then, almost overnight, it fell by 37%.

While it recovered quickly, investors, especially those who are trading CFD products, need to re-evaluate their game plan to these new market conditions.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

Remove emotions

Whether it's getting a bad umpire's call or playing a false shot, there are plenty of times where a tennis player could lose their cool. But the best are able to remove emotions before the next point.

After all, emotions stop tennis players from performing at their peak.

The same approach should be taken to your investment thesis. Acting on emotion is a surefire way to lose your money.

Instead, it is important to remain emotionless, whether your CFD increases or decreases.

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Work harder than everyone else

"I've missed more than 9,000 shots in my career. I've lost almost 300 games. 26 times I've been trusted to take the game-winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed." – Michael Jordan

As arguably one of the best players to ever step foot on a court said – nobody is perfect.

Michael Jordan repeatedly lost games. He missed buzzer beaters. But he worked harder than anyone else, constantly improving, and eventually went on to win 6 championships.

This is one of the key lessons investors need to learn if they are to succeed.

For every position an investor takes in the market, somebody else is taking the opposite.

Think about the process of buying a share. If an investor buys, another is selling.

And while investors buy and sell for different reasons, in a zero-sum game, one is right and one is wrong.

In order to succeed, an investor theoretically needs to know more than the other person. To gain this edge you should know your numbers, understand the total opportunity and weigh it up against the potential risk.

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Keep your eye on the ball

It may seem obvious, but the best tennis players watch the ball until the very last moment in order to better place their shots.

After all, it's incredibly hard to hit what you haven't seen.

For investors who are purchasing CFD products, keeping their "eye on the ball" is critical.

In order to be successful, investors need to watch the markets diligently, understanding how the day's events impact the businesses they own and things they'd like to purchase.

Failure to keep your eye on the ball, or in this case the market, turns an investor into a gambler.

Trade with TMGM

Sponsored by TMGM - official trading platform of the Australian Open 2022. Trade the world with instant deposits, fast withdrawals, fast execution and spreads from 0.0 pips. Trade 2,000+ stock CFDs, 50+ FX pairs, 12 crypto CFDs and more.

CFDs and forex are risky investment products and most clients lose money trading. Consider whether this is right for you before making a decision.

Compare other CFD trading platforms here

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