How to thrive in chaos - A 4 step framework for success

Chaos - origin, Greek - meaning, that which gapes wide open

The world can be chaotic. 

Anything can happen.  It's wide open.  Markets and trading can be chaotic.  Surprises happen everyday providing vast opportunity and producing troublesome risk.  Having a proven, repeatable process is crucial. 

The first step is to define the situation.

VUCA

Chaos can be broken down into four parts; volatility, uncertainty, complexity, and ambiguity.  Or VUCA

Volatile

• A tendency toward rapid and unexpected change

  • Trading application

    • Volatility is such a profound market concept that is measured constantly

Uncertain

• A wide range of potential outcomes making accurate prediction impossible

  • Trading application

    • We never know what a stock may do

Complex

• Many various interconnected influencing factors

  • Trading application

    • Endless amounts of information factor into price

Ambiguous

• Lacking clarity, without precedent, many unknowns

  • Trading application

    • We never have complete information

The OODA Loop

The OODA loop is a concept developed by Colonel John Boyd of the United States Air Force.  It is a method of conflict resolution defined as feedback loop in four parts.  Each one feeds forward to the next in an repeatable cycle until the conflict is resolved.

• Observe

  • What is happening?  Start forming a picture that frames the situation. 

    • What a trader sees

      • What is the current overall state of the market?

      • What is happening with the stocks on my watchlist?

• Orient

  • How does this affect me?  What are the potential outcomes?  How should I respond?  What actions are available to me?

    • What a trader sees

      • What is the opportunity?

      • Is there a potential trade setup?

      • Are there risks to my open positions that need to be addressed?

• Decide

  • Choose how you will respond and commit to action

    • What a trader sees

      • Write game plans for each potential trading setup

      • Update risk management plans as needed

• Act

  • Test your actions.  See what happens next.  Start again observing the outcomes and the new information produced.

    • What a trader sees

      • Take trades

      • Trim profitable positions

      • Trail your stops

      • Follow your game plan

Reduce stress and be more confident by using this framework.

Using the OODA loop takes chaos (VUCA) and adds focus and action. Focus and action reduce stress and anxiety. Reducing stress and anxiety leads smarter trading. Smarter trading leads to success.

Image courtesy of: By Patrick Edwin Moran - Own work, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=3904554