How’s Your Market Mettle? Trading Lessons of Navy SEALs

Sometimes trading can feel like a battle. Trader versus market. Moments of fear followed by thrills of triumph.

In true battle zones all over the globe, the elite forces of the Navy SEALs have pulled off countless military exercises in harrowing life-and-death situations, according to well-documented coverage (plus plenty of covert stuff we don’t know much about).

Several key principles guide the SEALs, some of which were covered in the just-released Extreme Ownership: How U.S. Navy SEALs Lead and Win by former SEALs Jocko Willink and Leif Babin.

The authors discuss how to apply SEAL principles to business and life. Let’s take a look at how they apply to trading.

Lesson 1: Take extreme ownership.

Take it upon yourself to always strive to push and improve.

"Extreme ownership is taking responsibility for everything in your world. No excuses. No rationalizations. No one else to blame. There is only you," says Willink, a platoon leader in Iraq and founder of Echelon Front LLC, a leadership and management company.

What it means for trading: When you place a trade, take responsibility. Don’t blame the results on the slow Internet connection, the emotional decision to follow a news story, or because the dog was barking in the other room. Before you make a trade, know why you are putting it on and be willing to live with the consequences.

Lesson 2: Check the ego.

Operate with a high degree of humility, admit mistakes, and take ownership. Ego is a powerful force, driving people to work hard and push themselves with intensity, says Willink.

But there is also a downside. "Ego can also cloud our vision. Ego may even cause us to ignore telltale signs and indicators that are counter to what we believe simply because we don’t want to admit we are wrong. Surprisingly, I even saw these things happen in combat. People would sometimes let their ego get in the way even when lives were at stake," Willink explains.

What it means for trading: The market is always “right.” Your opinion isn't what makes a stock go up or down. Be objective and use signals, indicators, and research to help make your decisions.

Lesson 3: Be decisive amid uncertainty.

There are no guaranteed outcomes in the battlefield or in the constantly changing markets. In order to succeed, leaders and traders must know how to take action in the midst of chaos. Decisiveness is a trait that can be learned, exercised, improved, and maximized, Willink says.

"It starts by removing ego and taking extreme ownership of decisions—or the lack of decision. Once you remove excuses and ego, decisions become clearer. But decisions are often not black and white, and information is not always complete or reliable. That was certainly true in combat—the battlefield is a constantly changing, unpredictable beast—just as much of the investing world can be," he says.

In a situation where markets are moving quickly, consider practicing a technique called the incremental decision loop to hone your analysis. "Make small decisions that permit progress, but that still allow adjustments to be made as the situation develops and information becomes clearer. Once the situation reaches a point where you can be decisive, you can make the call with confidence and move forward," he says.

What it means for trading: Create a written trading plan. Outline a list of criteria required to get into a trade. What are the parameters and indicator signals? Develop a trading checklist. Before you enter a trade, compare the current market situation to your list.

Parting Shot

Avoid wallowing in market analysis without following through on your trading ideas.

"Knowledge and understanding have no value without execution," says Willink. "Taking extreme ownership is key. Most of us know when we aren’t being decisive. We can tell when we let our ego get in the way. We hear ourselves blaming others. Extreme ownership mandates that we watch for these transgressions, identify, and destroy them—before they destroy us.”