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Tuesday, May 11 2021
I am not sure who told me that in my formative years but it sure has stuck with me. As I contemplated this blog, that phrase kept buzzing around in my head. I believe this is especially true when it comes to trading. I approach trading, like most endeavors in my life, as a puzzle to solve. Or said other ways: how I get ahead in this game; how do I win; how do I advantage myself. So, as my trading mentor told me many times, “do your playbacks!” (Homework).
Let me tell you my story to help illustrate the point. I was in an opening bell class with a dozen or more traders and was doing OK, but not great. Then I started to see patterns in the price action as I traded OB day after day. The feeling that I had “seen this price action before” got stronger and stronger with each trade. I mentioned to my mentor that I thought I wanted to trade opening bell with live money, to which he responded, “Do 200 OB playbacks, then come talk to me.” I could have chalked it up as being politely blown off but it only hardened my resolve. I did the 200 playbacks, but started to see other patterns. So I decided to use some of my engineering and Six Sigma training to organize and streamline my effort to find a trading advantage.
Let me give you the 30-second Six sigma overview. Approach any problem with a DMAIC process:
D = Define the problem
M = Measure the current state
A = Analyze the data you collected
I = Improve the process or situation
C = Control the process so you can get repeatable, improved results
So I put forth a hypothesis of what I thought mattered most in the moments before OB (trend, price action turn around and previous days’ closing price). Then I redid the 200 playbacks collecting detailed data. Now I could quantify how much of an advantage each factor gave me going into OB. I did my home work, twice. As I analyzed the data I found that my original ideas had to be tweaked to get an advantage. The analysis was not complicated: it was simple averages, percentages and standard deviations (just like Bollinger bands). So I knew the precise advantage for each combination of indicators. After testing my new-found advantages in simulation I eventually went live and now OB is my best-performing trade.
So, decide what you think makes a difference in your trading, and “Do your homework”!
By Jeff B, GA
I truly appreciate this Jeff! It is foundational thinking and doing the DMAIC approach with the correct Risk Management for each Position and Situation gives you the edge to be in the green on currency units each month! Thanks for your consistency!
Posted by Derek DAmour on 05/20/2021 - 08:14 AM