Yesterday evening we had the good fortune to be invited to a neighbor’s house for dinner. Her 92 year father was visiting and one of his trainees happened to be there to say hi on his way from California to France, his home for the winter. Pops, as he is called, spent much of his life dropping fire retardant on forest fires or running spotting missions to looks for fire outbreaks during lightning storms that might touch off a new blaze somewhere. Jerome, was sitting next to Pops and across from me for the entire dinner and what a conversation!
It turns out Pops was an firefighting flight instructor back in the day, and had helped train Jerome for seven years in his earlier days fighting fires in France. Jerome, now a seasoned veteran in the aerial firefighting arena had just finished up his California forest fire season and was heading home. We started talking about all the things he learned from Pops and I found analogies to trading everywhere the conversation turned.
First and foremost was risk management. You are flying an expensive plane and dropping a valuable load that might put out a fire, saving lives and property, or you might miss. But the most important thing to the pilot is to run the mission and get himself and the plane back to the airfield to get another load. It is not an option to take foolish chances and risk putting you and your plane out of the battle. Trading is similar. Surviving to trade tomorrow, next week and next year is extremely important to the trading plan. It does you no good to make huge returns one week, only to wipe out the account a week lately.
Next was the discussion of the decision-making on each run. It turns out that coming into a run over a fire, the pilot has to assess a lot variables and make very quick decisions. On every run they have to decide where the best place is to drop the load. They can’t always know precisely what is going on down below. Getting the load over the target and getting back to the airfield for another load requires making a decision and getting on with the process. That reminds me of trading in that a trader never knows precisely what is going on with a market. He/she has to quickly get as much data as possible, make a quick decision, and let the trade play out, because the market can move quickly.
Another similarity I found was what I call in trading thinking about “your next 1000 trades.” These two aerial firefighting pilots had many thousands of runs between the two of them. They did not let themselves get sucked into being obsessed with any one run over a fire. They did the same thing over and over and over again. Stick with the process and let the results take care of themselves is a motto in trading that I find useful mentally and they had the same exact motto.
Reliability came up during the conversation. It turns out that even though they frequently had people on the ground talking to them, they many times missed their target. Perhaps they had to remain at elevation and their timing was harder to achieve. Maybe a side wind created drift in the retardant. Maybe visibility was so bad they were operating on instruments and they had to make an educated guess on the timing. They thought that their reliability over making thousands of runs was maybe 60-70%. Jerome likened it to American baseball. You have to swing frequently, but you’re not always going to hit the ball. Isn’t that like trading? We need to get to our thousands of trades to really figure out what our reliability is over time. Some trades are going to miss. Reload and make another run.
Finally, the subject turned to the mental processes they go through. Jerome told me a story of flying with Pops on a particular run when he went over the fire, looked at it and circled around without dropping the retardant. When asked why he had not dropped the load, Pops replied, “It didn’t look right.” In trading we look for the conditions that our strategy needs to have in place in order to set up the next trade. If those conditions are not in place we don’t do the trade. We instead “circle around” and look for our next trade.
Balance is important. The pilots have to be mentally balanced, neither excited or anxious. Sure there are lots of dangers to these guys in making each run, but they view it as “one more run.” Traders need to think of their trades in similar fashion. Stay balanced, view it as one more trade and carry on with the process. Be alert, take in the data, look for a good setup, make good decisions, follow the process and you will be successful over the long-run. Both of these guys have had very long careers in piloting firefighting planes and judging from the conversation at dinner, they sure did enjoy the ride!
Masterpiece, Tom
great analogies, thx Tom.