Trading Lessons from a Spider
One of the true wonders of the natural world is the spider and their predatory techniques. When you hear of the ‘perfect predator’ you often think of a pride of lions in the Serengeti or a pack of wolves in the Canadian Rocky mountains. In actual fact one of the most successful is the spider living in your backyard. As a trader on the hunt for the next big wave you could learn a lot from a spider.
In this article, we’re going to look at a number of features that a spider uses that lead to their success as hunters
Their web – think of this as your trading plan
Silk that makes up the web – this will be the method and tools you employ
Their mental attitude – the all-important ‘mind’ aspect of trading
The spider’s most important tool when hunting is their web. There are many different types of webs adapted to various environmental conditions but for this example let’s look at the typical orb web with a pattern of concentric circles of sticky silk supported by non-sticky anchor lines. Often you find the spider sitting in the centre, patiently waiting for a signal that a prey has entered their territory. When you go on the hunt for your next deal, do as the spider and build your web or trading plan.
The key ingredient to a spider’s web is the silk, and the key ingredient to your plan will be the methods you use to analyse the markets. The silk that makes up the spider’s web has similar tensile strength to steel, is highly flexible and almost impossible for a small insect to escape once it becomes entangled. Some spiders are better at building their webs and the silk/method they use can make all the difference. So what should your method be able to do? An effective method will help you analyse various market conditions. It will idenfih or ranging with no clear direction? What patterns are emerging and in which markets. The right method employs the best trading tools to help you make this analysis. If the first market you examine is not performing to your plan (say the EUR/USD) then scan and find a market that is in the right environment for you (it could be an equity). And your chosen method should also help identify correct stop and profit levels, and entry and exit strategies.
Have you ever wondered why a spider doesn’t get caught in its own net? The sticky silk that makes up the concentric circles is supported by non-sticky anchor lines running up and down the web – the lines the spider will use as it scuttles towards its prey. Simple really. And here’s the lesson that you should pay attention to – keep it simple. Don’t over-complicate your trading by choosing unfamiliar multiple tools to analyse multiple markets. You’ll end up getting yourself tangled in your own silk or method with contradictory data. There are some powerful tools that have the ability to efficiently scan many markets at once, identify the different market conditions and adapt to your trading plan.
The strength of the web doesn’t only come from the silk but also from its design. A spider is methodical and systematic in building its web and certainly doesn’t cut corners. The design of the web means that one part can be damaged without compromising the rest of the web. Your trading plan should have similar features. Build it methodically and rationally and put in the correct money management so if you take a hit on one trade your overall trading capital stays intact so you can trade another day. In simple Darwinist terms, adaptation is the key to survival – it applies to spiders that have been on Earth for over 400 million years and to you as a trader. Choose one or two of these tools and use them to their maximum.
This brings us to the third part of the spider’s success – their mental attitude. Spiders are incredibly patient and wait for the right prey to come along. And that’s the attitude you should have in your trading. Be patient! You’ve built your trading plan, used your method to examine the markets, made your entry, set your stop loss and take profit levels, now be patient. Back away from your computer screen and don’t watch the markets constantly. Trust and stick to your plan. Don’t let fear or greed take over and certainly don’t try to take revenge on the markets by adding more than you planned to a losing trade.
Let’s review the lessons from our spider.
Build your web (trading plan) through methodical technical analysis and putting good money management in place
Keep it strong and flexible to cope under various market conditions
Design it simply – find the right trading tools that take the leg work out of multiple technical analysis of multiple markets
Be a survivor and patiently stick to your plan.
Imitation of the models and systems of nature to solve complex human problems, otherwise known as biomimicry is gaining a lot of momentum amongst chemists, architects and even petrochemical manufacturers. There’s no reason why trading shouldn’t benefit from observing the successes of nature over the millennium. Small, feisty, adapted to its environment, the spider is one of nature’s perfect predators. Take advantage of the lessons you could learn from them, and remember, it’s a jungle out there.