We all have an edge but not always where we imagine it to be

I am reminded of a financial trading blog that I have read in the past. TraderFeed is written by Dr. Bret Steenbarger, author of The Psychology of Trading to name but one of many books he has written. I like to read about the psychological aspects of trading because in the past that was my main failing.

Steenbarger's recent post entitled Learning from our Genius -- And Our Idiocy informs us that we are all good at something and pretty rotten at everything else. We need to concentrate on what we are good at and not try to fit ourselves into something for which we are not suited. For example, I have no skills in dancing and consequently, I don't listen to pop music. What would be the point if I did? However, I do see the world as a series of algorithms, which for me is a strength as I am good at analysing data and looking for patterns. Any psychologists amongst you have probably made a snap diagnosis. I won't argue with it.

Another thing I am rotten at is thinking off the top of my head. I have an unerring ability to make wrong decisions with no edge in the negation of my decisions, in case you are wondering. Push me into a corner and force me to make a simple decision and my mind clouds over. Question - "James, would you like tea or coffee?" Answer- "Errr. Penguin!"

As a trader, the use of subjective trading rules and realtime manual trading (e.g. scalping and other such manual trading techniques) are to be avoided by me. My mind is unable to think on the hoof. I would rather take the time to develop a trading strategy in my own time, convert it into an algorithm and get a bot to trade the rule impassionately. Of course, that removes a whole subset of manual trades from my portfolio but for me those trades would be losing trades anyway.

If you are just starting out as a sports trader then I would suggest you try a little of everything to find your niche. Find the sport that suits you, be it in-play or pre-event trading. Try manual trading and algorithmic trading. If you have no mathematical or statistical skills but have some God-given skill at looking at the flow of funds entering and leaving a market then maybe scalping is for you and algorithmic trading isn't. Those who have good mathematical skills but no ability to create trading algorithms (they do exist) evaluate other people's trading rules (known as advisories) and build a portfolio of them into which they invest their money.

When I first started out as a sports trader, I did as everyone else did. I looked at the scalping videos, got the third-party trading software and made a hole in my bankroll. For me, every situation looked a worthwhile trade. Thankfully, my analytic side noticed the dwindling bankroll and I decided that whatever I was doing had a negative edge. I left the trading to analysis and algorithms and reversed the loss.

We are all good at something, as Steenbarger says. Don't try and force yourself to be do something you are no good at. Even if it means giving up sports trading altogether. At least you will gain an edge with regard to determining which asset class you shouldn't be investing in.