TGIFF #011: What Super GrandMaster Chess Players Can Teach You About Trading?

I must confess I’m a bit of a chess nerd and whilst I don’t get to play as often as I would like, when I do play, I like to play against other players who are better than me for 2 reasons:

• When they KICK MY ASS, we spend time analyzing how the game played out and it helps me identify the weaknesses in my game.
• I’m extremely competitive and I like to win (who doesn’t), but I don’t like to easily win. That's why I try and play against better players, if I happen to win, I earned it.

At first when playing these better opponents, I would get the SNOT KICKED out of me, because I was a very aggressive player, I had a very strong opening game, and I had no problem bringing my big guns out early (which is very intimidating for a newer player) but against these guys they were licking their lips.

They would just sit back and patiently take my pieces one by one all the while having a fortress surrounding their king.

Then the penny dropped!

The best chess players, grand masters and super grand masters ALWAYS play defensive first and wait for their opponent to make a mistake (either through frustration or a mental lapse in concentration) then go on the attack picking up valuable pieces, slowly twisting the knife into their opponents.

What Does This Have to Do with Trading?

Well, a lot actually… 

The best offense? A good defense.

You hear this a lot in the sporting world, but it also applies to trading: The best offense is a good defense. 

Here’s why:

The way you achieve long-term consistent trading success is by being defensive in your approach. 

That means, you only trade when the market conditions are right, when all your trading plan criteria has been met.

The goal of trading is not just to “make money”, but also to not lose money you have made! 

These are two different things that require extreme mental fortitude.

Beginning traders often approach the market from the complete wrong mentality.

They are just trying to make money as fast as possible, when they should be trying to protect their money as much as possible.

You really cannot operate in both mental states at the same time.

You must pick between the two and if you do not choose to protect your money as much as possible, you’re probably going to lose it.

It is not surprising for a beginning trader to get lucky and hit a few good trades, or even to simply do well for a while by following their plan (not just lucky).

However, it’s after doing well for a while that many, if not most, blow it.

Traders get confident, cocky, arrogant, whatever you want to call it.

The point is that winning feels good and it OFTEN goes to a trader’s head, quickly. 

All that good, defensive, slow, methodical work that you did to hit those winners tends to go flying out the window when the sensation of winning floods your brain with feel-good chemicals.

So, what’s the takeaway?

Be a defensive-minded trader.

Follow Warren Buffets quote on losing money:

Rule #1: Never lose money. 

Rule #2: Never forget rule number one.

Hope this analogy was helpful. 

I’ll see you next Friday.

Till then, keep trading and have a wonderful weekend!

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