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And You Thought Trading Was a Tough Way To Make a Living Check out the following excerpts from the PBS documentary series "Carrier - Rites of Passage", showing Navy pilots landing aboard the USS Nimitz during rough seas in the Pacific Ocean. Part One: (10 mins)
Part Two: (10 mins)
I've landed a Black Hawk on the back of a frigate, several times, by both day and night. But it's always been with a reasonably calm sea-state. I couldn't imagine the challenge these guys faced. It's insane! Anyway... let's look for the trading lessons. The obvious one to me is the difference between risk aversion and risk awareness. It's all too easy to watch this and conclude that whoever authorized the training sorties in such conditions made a serious error. And perhaps that's true. But that's a decision that must be made by any safety investigation that was (hopefully) conducted following this occurrence. It's not for me to state, given I'm not aware of the full picture. The reality is that military flying occurs in an environment that does contain risk. The effectiveness of the commander's decision making will depend on whether he is risk averse or risk aware. A commander is ineffective if he or she is risk averse. Decisions will be made to avoid risk, with little consideration given to potential benefits that can be gained by accepting this risk. In this case, a risk averse commander would automatically limit deck landings to calm sea states. While it may appear safer, it does in fact ensure that his or her aircrew fail to achieve proficiency in more challenging environments. An effective commander will be risk aware. He or she will be mission focused, but not to the exclusion of safety. This commander will act to identify and manage risk, reducing it to as low as reasonably practicable, and then weigh any residual risk against the potential benefits to be gained, considering at all times the intent of their higher command. In this case, proficiency in landing in pitching deck conditions is a perishable skill, so it's essential that training does occur. An effective commander will take numerous factors into consideration in assessing this risk, in particular the crew's current proficiency and the extent of the sea conditions, before deciding whether or not to authorize the training. Sometimes incorrect decisions will be made (as arguably occurred in this example). However contingency plans will be put in place as part of the risk management process, such as the availability of tankers for air to air refuel and rehearsed drills and procedures for ditching. The same applies to your trading business. While it's not a life and death situation, the psychological and financial risk is very real, and your effectiveness as a trader requires that you make decisions from a position of risk awareness, not risk aversion. A risk averse trader will seek to avoid risk through any number of methods - busying themselves in a search for the Holy Grail trading strategy that provides no losses; waiting for a dozen indicators to align to provide 'more confirmation' typically resulting in too late an entry; or consistently failing to pull the trigger. This aversion to loss typically guarantees failure through ineffective trading and suboptimal results. A risk aware trader considers both the potential reward and potential risk of each trade. They trade only when the potential reward justifies the exposure to risk, and they accept either outcome - profit or loss. Sometimes when trading conditions are not suited to their strategy or level of proficiency, they'll pass on the opportunity. But whenever they do decide to trade, they always employ strategies to ensure trade loss is minimized. And they employ strategies to ensure that any contingencies are managed, such as failure of their platform, computer or internet connection during a trade. Win or lose on any individual trade is not of great importance, provided the risk was contained and the trade was selected and managed in accordance with your plan. There are no opportunities to profit without exposure to risk. Accept it. Identify the risk and manage the risk. The confidence you will have through knowing that you're prepared for 'pitching deck' conditions is priceless. Happy trading, Lance Beggs
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