How To Prepare To Innovate Your Trading (Key Points/Cheat Sheet)

Here are the key points from our video ‘How To Prepare To Innovate Your Trading’ that you can use as a reference guide or ‘cheat sheet’. The video is available on our YouTube channel and at the bottom of this article.

  • By breaking things down, we can start to innovate by looking outside of trading. This is like what is done in Formula one. The technical leader of the Mercedes F1 team, Paddy Lowe, claims that when he started in F1 they would record 8 channels of data. Now they record 16,000 from every single parameter on the car. Which then leads to another 50,000 channels of data.
  • This allows them to innovate at the highest level, meaning even technology from a couple of years ago is already outdated as they move on to bigger and better things in every aspect. From the fluid for the drivers, to the exact angle of the gun operator in the pit crew. Some of these innovations won’t be specifically for F1, but will also be used in other industries entirely. They refer to this as their optimisation loop but it’s most commonly known as marginal gains.
  • This term marginal gains became very popular after the success of Sir Dave Brailsford who used the approach to transform British cycling. In the 2000 Olympics, the team had only won 1 gold medal. By 2008, under his guidance as performance director, they won 8 gold medals and again in 2012. His philosophy is simple. You break down every single thing possible in the process of cycling and try to improve each thing by just 1%.
  • This is a marginal gain in every category. But together they all add up to be a magnificent advantage. This even extends to having marginal gains in sleeping. As they will go as far as to have certain mattresses and pillows that travel with the cyclists to ensure every single aspect of their performance is excellent.
  • Taking the traditional trading approach, Brailsford might have looked at the wheels they’re using and tried different other wheels on the market. This is what traders do by swapping a trend line for a moving average and so on. But instead, by breaking down exactly what goes into making the wheel, from the shape, size and material, it really leads to innovations. This is like us looking at exactly how we use the trend line. Which anchor points, what duration of time, what criteria in general. This approach is now used in everything from business to healthcare to education. So let’s use it for trading.
  • What we want to do is to start off with the core areas of our trading. For example, technical analysis, fundamental analysis, money management and risk, psychology and any other main factors you can think of. For most traders, this is all they would look to optimise. They look at these broad categories, and try to fill in something for each of them. But we want to take it a step further, so next we want to break these down further.
  • A good way to do this to begin with is with a mind map, where you can show how things link together. But after that I would recommend transferring this to something like a spreadsheet where you can see everything listed and you can input certain actions or results in there afterwards.
  • We basically want to cascade through the levels. Technical analysis might be broken down into horizontal analysis and trend analysis. This might then go deeper to trend lines, Fibonacci and so on. Before then you look at specific variations and different aspects of it. Like for Fibonacci, you might look at the individual levels, or the different anchor points you use.
  • Basically you want a list of every tiny aspect of your trading. Even if this is hundreds of aspects. It doesn’t necessarily mean you’re going to improve all of them, but it’s important to note them down. If you want to take it a step further, you can even look at things which might affect your performance but aren’t necessarily linked to trading. Such as how much sleep you get, what you eat, how much time you spend trading, even down to what mouse or screen you use.
  • It’s going to sound like a lot and it will seem strange that we’re innovating with all of this, but after a while once you get used to it, you will wonder how you can even optimise without this level of complexity. It will suddenly seem normal and it’s the same as when you look at any world class complex system in anything, including the human body.
  • The innovations aren’t done in a compound or macro way, they happen on small levels with the individual parts. This is how evolution and innovation works.

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