Day Trading Focus: The Quick and The Dead

The Quick And The Dead is a phrase that some traders have used to describe the high-risk yet thrilling nature of day trading. It’s a loaded term; one that conjures up the image of a gunfighter dating back to the Old West.

The phrase refers to the risk of “speed,” or rather, not being fast enough. It implies that the use of high leverage can potentially bring about financial peril (“death”) in a failed situation. And it also implies competition, struggle, or combat: against the market, against randomness and chance, against the trader on the other side of your position, or perhaps against yourself; your own skill or lack there of.

The faster the trade + the more complex the setup + the higher the leverage = the greater the risk

Day traders who decide on and execute trades manually probably do so because they feel that certain trading opportunities cannot be quantified. Otherwise, they’d be using an automated trading system. There are certain nuances in the market that may be best read with human eyes and human judgement.

When you add speed to the mix, the decision making process may slow down depending on the complexity of the setup. And the choice of position size can ultimately make or break a series of trades. In short, there’s a lot at stake for the day trader who has to compete with the fleeting nature of a trading opportunity.

And although certain “external” factors such as speed and timing (opportunity) cannot be controlled, the day trader can exercise relative control over his or her response to such timely and high-risk opportunities. Let’s switch domains and compare this type of risk-taking to another risky field of operation: the dogfight.

40-Second Boyd and the OODA Loop

John Boyd was a military theorist and USAF pilot who helped shape the formalized doctrine of “maneuver warfare.” Nicknamed “40-Second Boyd,” as he was capable of defeating opposing plots (or placing them into a vulnerable position) within 40 seconds during dogfight simulations, John Boyd spent several years researching historical decision cycles across a wide range of conflicts that have led certain armies to become victorious over larger and more advanced opponents.

John Boyd came up with the O-O-D-A Loop. Observe-Orient-Decide-Act decision loop. A simple explanation of the theory goes like this:  the opponent who can see first or see more (Observe) can position him/herself faster (Orient) than the opponent. With this relative time advantage, s/he can then Decide and Act while the opponent is still observing or orienting hm/herself.

The person who can cycle through the OODA Loop faster may end up shaping the tempo of the battle. And if s/he can shape the tempo of the battle, s/he is forcing the opponent to react to him/her rather than the other way around. Hence, the person who can act with a faster time cycle has a significant advantage over the opponent.

The OODA Loop decision cycle applied to day trading.

Let’s bring this concept over to the realm of day trading. The stress of having to trade in rapidly fleeting conditions is enough to disrupt your process and flow. How might you use the OODA Loop decision cycle to help enhance your trading process?

    1. Observe: Getting real-time data at the scale that is appropriate for your trading is fundamental to responding to market conditions in a timely manner. But there’s also a possibility of seeing too much, too quickly. What may be helpful is to create a setup wherein you can immediately see only as much as you need to see. Anything beyond that level of observation may lead to latency.For example,  if your trading decisions on a given market rely on supplemental data from other markets or other sources, then you may want to create a setup in which you are able to see all of your supplemental data simultaneously. Perhaps you trade foreign bonds but need to see their correlations with a basket of currencies; perhaps you trade Bitcoin futures but need to see the different spot prices offered at various cryptocurrency exchanges; or perhaps you use multiple indicators and need to see each set of indicators on separate charts so as to better simplify or categorize your technical evaluations.
    2. Orient: This is probably the most important aspect of the decision cycle. You are rapidly taking in lots of information in the Observe part of the cycle. If you don’t know how to process it with a complementary speed, then you might run the risk of falling behind. Perhaps you come across an unfamiliar market pattern or scenario. This is where situation planning, historical simulations, or just plain experience come in handy. The more scenarios you’ve come across, the more prepared you might be when dealing with varying market scenarios.
    3. Decide: The decision phase is the intermediary step between analysis and execution. Once you’ve made a decision on a trade, your dashboard will hopefully be set up in such a way as to allow you to take immediate action. If you have to click on your dashboard or close unnecessary screens or windows, you may end up compromising your execution speed.
    4. Act: The important thing about this last phase goes beyond the execution itself; you need to be prepared to to cycle back to the first phase of observation (Observe). According to the principles of the OODA Loop cycle, you will want to go back to the observation phase to monitor your trade, check for any errors of judgment or execution, and prepare for any modifications based on any new market information.

Day trading can be a stressful endeavor, particularly when you are trading fast markets or using high-leverage. Your leverage can be managed (simply trade fewer positions, or don’t trade any capital you cannot afford to lose), but the speed of the markets is something beyond any traders control.

What you can do is develop your skill to handle such markets; the ability to think and act quickly is a skill to be developed. And by training yourself to think faster and by reducing any “clutter” in your trading environment, you may be able to increase the speed at which you perceive, evaluate, and act.



Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.