Trader Tip: Complexity in Trading As part of the Blue Point Trading Trader Trainee Programme, though optional to trade, it is recommended to have an identified trading strategy. We can do this via building a Trade Plan after gaining a good understanding received from our eLearning and other trader education, gain from many sources via the Internet. It is a lot of information to digest. One question we get a lot is, just how complex this should be? The tendency of a lot of traders, is to either ignore, give a mere high level approach or get buried into complex detail. So, in this Blog post, let’s discuss briefly complexity in trading.
A word on the idea of complexity. Joseph Tainter has written much about complexity as it relates to the rise and fall of civilizations. Obviously this idea was not specific to trading, we can use however some of these same principles to answer this question of complexity in trading.
The idea, as shown in the attached thumbnail, is that there is a bell curve of benefit relative to different levels of complexity in our trading strategy – i.e. Trade Plan. Taking this principle we need to search for the correct level of complexity – not too little and/or not too much. As so often in life, finding the right “sweet spot” is key in so many things we do. So here are a few practical suggestions to help understand a few rules of thumbs when determining whether your Trade Plan is at the right complexity level:
- No Trade Plan indicates, no complexity.
- Trade Plans that do not use any specific indicators (with stated parameters) for the trade Trigger, Order Management or Filter, indicates too low of complexity.
- If a Trigger has more than 2-4 and a Filter has more than 1-2 chart indicator (this include the various types of indicators), it may be too complex.
- If your PSR (Profit Stop Ratio) can not be determined via the identified Stop and Target, it is not complex enough or simply undefined.
- If your Trade Plan needs more than a page to explain, it may be too complex. Simply written with a graphic is best.
In short the Trade Plan should be: “simple and concise,” which are not mutually exclusive. When trading, decisions are often made fast, and having the right complexity in the Trade Plan will be key. The final test of your Trade Plan, is to give your Trade Plan to several others with a blank chart, and ask each person to mark the chart on where a trader would enter, place the Stop and Target. If you do not see consistency in the results, the Trade Plan is most likely not written to the correct level of complexity to understand. So I hope this Blog post will help you understand whether your Trade Plans are at the correct complexity, with the goal to improve your overall trading performance. Click here, or watch below a video presentation of this Trader Tip.
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