24 August 2020

Optimized Trading

In simple trading as in life generally, the answer you receive to a question depends to a very large degree on the question itself. More specifically, the quality of the answer depends on the quality of the question. In this post, I want to explore the impact of this phenomenon on your trading… and how you can use it to your benefit.

Several years ago I read (most of) a book called Optimal Thinking by Rosalene Glickman. Now don’t go flying off to Amazon and downloading the Kindle version as I don’t recommend that a bunch of traders read it. Not because the book’s thesis is invalid… but more because it’s one of those books that reads like some of the many hour long television documentaries that should really be a 15 minute segment of a larger story. You only have to read the first chapter to absorb 75% of the book’s value. And since I’m about to give you that 75% right now, you don’t even need to bother doing that much.
Here’s the concept of optimal thinking in a nutshell… Your thinking is geared to the best, most efficient, highest value solution to a problem or answer to a question. When faced with a challenge, you automatically think “What’s the best way to do X?” or “How can I solve Y in the best way possible?”
Suboptimal thinking, on the other hand, is when you ask questions like, “What’s a good/fast way to do X?” or “How can I solve Y?” In other words, you’re focused on getting to the end result with little regard for the quality of the journey… or the quality of said outcome itself for that matter.
It may seem subtle… a distinction without a difference if you will... But when you start applying this rule to your trading (and your life for that matter), I think you’ll see some interesting results.
For example, when planning financial moves (trading), you might ask yourself (perhaps subconsciously and nonverbally), “What’s a good (profitable) outcome I can achieve next year?” By answering that question, you might build a decent Trading Plan for yourself. However, I bet it’ll likely be a suboptimal plan.
Try instead asking yourself, “What’s the best (most profitable) outcome I can achieve next year?” Now you’re seeking the optimal solutionthe best instead of just good or even great.
Sometimes you don’t immediately know the best solution to a problem. In that situation, you ask, “What will the best solution look like?” And then you start listing attributes and constraints that your optimal solution will need to exhibit. This helps you narrow the list of alternatives. If you know a particular attribute of the optimal solution, then you can reject all possible solutions that lack said attribute.
Going back to the example of the best possible Trading Plan, you might list some of these attributes: focus, meditate daily, only take long trades, only take my tested setups, always use stops, work to increase expectancy vs win%, keep my journal religiously, review my journal each week/month depending on timeframe traded, read 1 trading related book each month, etc. Then you can work backward from these subgoals to piece together your optimal trading plan.
Keep in mind that the best solution always takes into account the resources you have available. If a possible solution is impractical, then it certainly isn’t optimal. That said, one of the many really good things about trading is many of the resources you need reside in the space between your ears. In fact, with the exception of technology and money, pretty much everything that you need is between your ears.
That said, you may still want to include your key constraints in your original question, such as, “What’s the best/most profitable trading outcome I can achieve next year while swing trading only?”
In my experience, the most beneficial aspect of optimal thinking is that it helps you raise your standards. Instead of settling for mediocre results, you commit to doing your best, yet in a way that’s practical and which considers the reality of your situation.
Often when you ask yourself, “What’s the best …,” you’ll find your mind zooming towards a very different kind of solution than you would if you asked suboptimal questions.
Here are some sample optimal thinking questions to get your mind moving in that direction:
  • What’s the best timeframe for me to trade?
  • What’s the best way for me to meditate regularly (when, where)?
  • What’s the best way to assure myself that I’m trading within context?
  • What’s the best way for me to consistently keep my losses as small as possible relative to my wins (i.e., improve my expectancy)?
  • What’s the best trading school for me to attend?
  • Who’s the best mentor/coach for me to work with?
  • What’s the best way for me to learn the additional things I need to learn in order to be the best trader I can be?
  • What’s the best trading book I should read next?
  • What’s the best new trading blog I should be reading regularly?
Ask and you shall receive.
Ask for the best.

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