As a kid I loved playing Madden, NBA Live, NCAA Football etc.  The game play is always great, but my favorite aspect of them was Franchise Mode.

For those unfamiliar, you take control of a team in the present year and you play and manage the team season after season until you’re sick of it.  You have to try to make decisions the best decisions that benefit you in the short run and long run.

Interestingly, the way I manage my trading has developed into a Franchise Mode manner.  I’m not making decisions based on what I think is going on in the short term, I make them based on principles that will help me succeed in the long run.  These are the type of things that will create outperformance in all market conditions.  These are good habits.

Some habits include not chasing entries, taking gains at resistance, patiently waiting for fat trading edges (thus not taking trades that aren’t that great) and taking trades that will work in a time efficient manner.

Unfortunately, Franchise Mode Trading ™ isn’t what gets you the very best results in a massive up trending market.

Here’s a line from Howard Marks during his recent Masters In Business interview:

You want to be in the second quartile of performance over and over again to get in the top few % of asset managers. To get in the top 10% of performers in a given year, you have to take an unusual amount of risk that eventually blows up in your face.

The very best traders know when to loosen up or tighten up with regards to risk-taking.  There are pros who can do it and earn astronomical returns.  But they aren’t most people and it’s a very hard game to play over time.  Habits are just hard to break after years of acting a certain way.  Buffett has the best quote on this:

“Chains of habit are too light to be felt until they’re too heavy to be broken”

The question is are you trying to win this week’s game or are you trying to build something that will be great year-in-year-out?  Of course the answer is both, but unless you’re Bill Belichick that’s extremely hard to do.

Trade ’em Well