My take on the problem with force management is that it has been treated as a complicated problem, suitable for central planning (PPBES) and not as a complex problem, rife with social & political context, in a dynamic state where the variables change parameters far faster than the planned decision cycles. Consequently, we never get what we planned for, it’s always too costly and the steady-state never is.
My suggestion that FM be treated with design, as a complex problem, would engage with fundamental questions of the purpose of the Army and process by which it is designed, fielded and sustained. I’d argue against an Archimedean perspective because that’s what has led us to the cumbersome, over-planned, under-executing Byzantine bureaucracy we have in place. The owner/operators (ie operational career field “end-users”) have generally stayed outside of the process and have let the “experts” run this system. I argue for them to be part of the FM process, and thus believe design-thinking is needed in order to get the Army you want.
I consider it to be complex, and not just complicated, because of the multiple actors, time frames, values, purposes that combine to resemble March’s “garbage can decision making model” w
A rather longish discussion of how social, political and “unplanned” FM can be is here: http://usacac.army.mil/blog/blogs/dlro/archive/2008/11/24/a-reflection-on-army-force-structure-decision-making-from-1995-1996-passing-on-the-bct-based-army.aspx
Hockey is about the team AND respect for the other teams, all of them, who pushed you beyond what you thought were your limits: Your opponent is respected fro their effort that made you go thru their fire.
Hockey’s tradition of handshaking is planned for, expected, and is for me the highlight of a yearlong honorable quest, even better than the skating of the cup, when you get to see the players acknowledge each other after the competition: its what makes us civilized again, right after the supreme competitive effort.
That’s why Cindy Crosby’s snub of Nick Lidstrom last year was so telling; Crosby lacked the maturity and poise to do the right thing, being so caught up in the moment; That’s what boys do, men remain centered
American football culture cant wait to crown the winners and discard the “losers”. To even think in those terms tells you whats wrong with football culture that cant make time for the acknowledgement of the other.
If Peyton were a hockey player, with his respect for the game and his intensity, he would have been the first in line to congratulate, because he honors the traditions. But because he is a football player, he did what football players do: he acted like a loser and cleared the stage.
Football would be better if it were more like hockey.
Football would be better if it WERE hockey
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The Research Problem
The purpose of this paper is to offer one vision of developing a methodological theory of mixed methods research co-equal with that of quantitative and qualitative research. I use a case study of the US Army Command & General Staff College engaged in a redesign of its curriculum, its teaching practices and its design process itself in a period of revolutionary change while supporting a nation at war. I describe circumstances and worldviews in which I argue that only mixed methods research may be employed to simultaneously develop a deep appreciation of uncertainty, improve decision making through an appropriate gathering, mixing and analyzing of quantitative and qualitative data, and applying “learning in action” as a strategy to manage success. I contrast the view of research as a process of increasing knowledge for control with a worldview of research as a learning-in-action that allows for deep appreciation of complexity but without the assertion that appreciation and research can lead to prescriptive measures of control. I examine the merging feedback system of the CGSC curriculum redesign as a mixture of qualitative and quantitative data. The concept of “Voice” that emerges from the CGSC action research process will be described, along with a multi-phased, multi-year research plan that demonstrates the practical development of an interactive dynamic research plan that is also adaptive to interim and periodic results. The paper reflects a pragmatic worldview as it focuses on practical outcomes inside an organization concerned with real-world results, but acknowledges the importance and utility of the other 3 worldviews described by Creswell (2007, p.6), namely advocacy/participatory, post-positivist and constructivist.
Waldrop (1992, 2008) described the emerging science of complexity in a rich description of the inter-disciplinary work developing at The Sante Fe Institute. Sixteen years later (Waldrop, 2008) he found that the pioneer days of complexity research had evolved into a rich diversity of programs in major and minor universities worldwide, with lines of business and cognitive domains each finding ways to apply the ideas of emergence, uncertainty and complexity in new and profound ways. What remained unchanged from the origins of the research were the questions of what next and so what and how much more is there and what does it mean to apply an appreciation of complexity to everyday problems and opportunities. The field of education is only beginning to appreciate how complexity and uncertainty may change the dynamics, structure, content and practice of adult education (Siemens, 2004). Professions in particular will be challenged by educating for complexity, since deep, profound, and reliable bodies of knowledge are at the center of professional practice. Educators, themselves members of a profession, are examining what it means to educate, teach and instruct in light of an emerging awareness of complexity.
The US Army Command & General Staff College (CGSC) is a self-described “learning organization” (Senge, 2000), engaged in a revolutionary re-design of curriculum and teaching practice, with a mission to educate 1500 US Army Majors for uncertainty and complexity, while engaged in a global war on terror and in direct combat in Iraq and Afghanistan (Long, 2009). This provides an opportunity to examine reflective learners and practitioners in action (Schon, 1987) using mixed methods research and using multiple worldviews (Creswell, 2009; Creswell & Plano Clark, 2007).
Past Research on the Problem
Edmondson and McManus (2003) propose a structured approach to selecting research methods that fit the state of theory in a given field. Their 3 archetypes of the state of theory: nascent, intermediate and mature are connected to qualitative, mixed methods, and quantitative research methods, resulting in an appropriate methodological fit that aims to meet the needs of researchers worldwide. Creswell(2009) offers a systematic approach to analyzing: researcher worldview, research purpose, research questions, the state of theory, data collection, populations and situations to be studied, and data analysis in order to further refine the methodological fit and better connect purpose with practice across all 3 methods. Creswell and Plano Clark (2007, p.8) offers a functional working description of the state of mixed methods research, which proceeds from a deep review of current field practice, establishes a superb framework for classifying current choices of mixed methods research design and the means by which methodological fit may be refined, but stops at the boundary of developing a deep theory of mixed methods of research.
Deficiencies in past research and Need for Mixed Methodology
Conventional professional education processes have been adapting at an increasingly frequent rate as a consequence of Army senior leader directives and direct field feedback. The adaptive processes and decisions to date have been single issue, single iteration problem solving exercises inherited from an environment in which incremental change was the norm and most appropriate. These processes are less and less suitable as rates of required change increase and the relevance of existing processes and curriculum are increasingly called into question (Long, 2009)
The audience for this research include: staff, faculty and students of CGSC; educators of military professional schools; curriculum developers in graduate schools and organizations engaged in preparing leaders for uncertainty; scholar-practitioners of mixed methods looking to adapt practical field methods of for mixing qualitative and quantitative data; scholars examining the deep theory of the methodology of mixed methods.
Purpose of the study, and reasons for a mixed methods study
The purpose of this study is to examine the CGSC curriculum redesign project and the emerging feedback system that guides design decisionmaking, which incorporates both quantitative and qualitative data. The project can be described as intermediate theory in the Edmondson and McManus ontology, and therefore suitable for mixed methods research since I am introducing an emerging concept (“Voice”), focusing on the exploration of theoretical propositions (the theory of mixed methods), the availability of sets of rich theory that inform the research (adult learning, decisionmaking, complexity, design, learning organizations, narrative inquiry and action research), and incorporating multiple data types and analysis (Edmondson& McManus, 2007, p.1165).
Research Questions and Hypotheses
H1: Student satisfaction measured on the Noel-Levin Adult Learner Satisfaction Survey is not different than their reported overall satisfaction
H2: Student education priorities measured on the Noel-Levin Adult Learner Satisfaction Survey are not different than those of faculty and college leadership as measured on the same instruments
H3: Student education priorities measured on the Noel-Levin Adult Learner Satisfaction Survey do not vary through time in the course of the academic year
H4: Student education priorities measured on the Noel-Levin Adult Learner Satisfaction Survey do not vary after graduation and reassignment to field units
H5: Student satisfaction measured on the Noel-Levin Adult Learner Satisfaction Survey do not vary from satisfaction as measured by existing CGSC Quality Assurance surveys
What are the dominant and subordinate narratives that emerge from focus group discussions on educational priorities and practice and environment within CGSC?
How does the curriculum design decisionmaking process respond to similarities and differences in narratives that emerge from groups of students, faculty and senior leaders?
Describe the development, emergence of the construct of “Voice” from the CGSC PAR cycles, and how this prototype construct is evolving and being applied by various sub-groups within and associated with CGSC, by applying various interpretive methods of the narrative inquiry tradition.
Mixed Methods Questions
1. To what extent are qualitative insights generated from PAR cycles, focus groups, and individual interviews supported by quantitative data generated from surveys and actual use data of digital communication and collaboration mediums?
2. How are various organizational narratives constructed by sub-groups within the CGSC curriculum design process in order to make sense of quantitative data?
3. What insights are offered by the application of various narrative inquiry traditions? Which traditions are favored or overlooked or rejected by curriculum design decisionmakers?
4. What happens within CGSC when students and faculty are given opportunities to exercise “Voice”?
Philosophical Foundations for Mixed Methods Research
Quantitative research literature review
Student satisfaction surveys built on consumer theory (Watkins, 2009) are broadly applied in colleges and universities, and treat students as free-willed individuals that choose between alternatives for an educational institution and particular fields of study. They are seen as rational actors with definite expectations about what they want in their educational experience, and that satisfaction occurs when their expectations are met or exceeded. Smart, Feldman and Ethington (2006) note a decline in the attention being paid to the attitudes and behaviors of faculties, administrators, and the college and university environments as contributors to student success.(p.2.). These insights are related to the “college impact” model of student success. Applying the Noel-Levitz Adult Student Priorities Survey leverages a robust, nationally recognized, validated research instrument whose dimensions reflect the areas of importance emerging from the CGSC Participatory action research (PAT) study (Long, 2009) and enables quantitative research into the existing database of historical satisfaction measures currently applied in the college’s curriculum design process.
Qualitative research literature review
The James, Milenkiewicz and Buchnam (2008) application of Participatory Action Research (PAR) develops measureable action steps that can lead to revolutionary transformations within educational institutions. The use of measureable qualitative and quantitative data gives power and legitimacy to the insights it generates inside an organization that values rigor and validity, while respecting the intuitive insights of qualitative research. Prasad describes many techniques of Narrative Inquiry that offer many techniques for interpreting and making sense of qualitative and quantitative data. Reason & Bradbury, (2008) and Clandinin, (2007), describe these disciplines and crafts of action research and narrative inquiry as having a relatively mature foundation of theory and best practices, with enough variation between sub-disciplines as to create real and significant choices for researchers . Various methodologies in each discipline can be characterized according to their own logic that connects their particular world view (Creswell, 2009), ontology, research technique, data requirements, classification and analysis protocols, and strategies for sense-making of the results of inquiry. The combination of PAR and narrative inquiry offer a robust set of strategies for generating insightful qualitative data with connections to quantitative data sets, which make them especially useful and practical to mixed methods researchers.
Mixed methods research literature review
Creswell and Plano Clark (2007) provide a broad yet detailed overview of the current state of the art of mixed methods research. They offer a working definition of the field derived from a survey of practice which proceeds from a deep understanding of high quality methods of practice, through choices of design and point to potentials for the development of deep methodological theory. They offer mixed methods as an appropriate research strategy as a way to improve on the use of either qualitative or quantitative research alone. In their view, mixed methods are more comprehensive, can answer more types questions, encourages collaboration and the deliberate incorporation of more than 1 worldview and is especially well suited for situations where practicality and pragmatism are prized (Creswell & Plano Clark 2007, p8-11).
A definition of mixed methods research
Creswell and Plano Clark (2007, p.5) define mixed methods research in the following way:
“As a method, it focuses on collecting, analyzing and mixing both quantitative and qualitative data in a single study or series of studies. Its central premise is that the use of quantitative and qualitative approaches in combination provides a better understanding of research problems than either approach alone”.
The type of design used and its definition
In this section I will briefly describe the theoretical shortcoming of treating mixed methods merely as a practical solution to improving upon either the qualitative or quantitative approach alone, and why a broader and deeper theory of mixed methods is appropriate for developing deep appreciation of complexity and uncertainty. I will briefly describe two different designs that would pass the test of the Creswell and Plano Clark ontology of mixed methods designs. With appropriate development, either would be approved for research within CGSC.
Comparison table (adapted from Creswell & Plano Clark (2007)
|Design 1||Design 2|
|Theoretical Description||A 2 phase design, where qual helps explain or build upon initial quan results (p.71)||2 phase design where qual results help develop or inform 2d phase quan inquiry|
|Description of application to CGSC||Round 1: the Noel-Levitz Adult Learner Satisfaction Survey is applied to a population, and results are tabulated, analyzed, compared against national graduate student norms and in a time series from the beginning, midpoint and endpoint of the academic year. Insights are developed
Round 2: A series of focus groups and individual interviews are used to develop qualitatitive insights to make sense of the quantitative findings
|Round 1: a set of participatory action research cycles identify areas of pressing concern to leaders, faculty and students within the college. A grounded theory is developed and constructs are defined by the community of practice, informed by theory from PAR outsiders.
Round 2: A quant survey is developed to explore deeply into issues and constructs developed by the PAR teams to cross check for validity, to confirm or deny, to support or modify the emerging grounded theory and provide the basis for future inquiries as selected by PAR teams. (Note: this is s summary of the actual process used at CGSC as the basis for this case study. The various tangents deriving from the initial rounds of inquiry generated my epistemological concerns with the pragmatic assumptions of mixed emthods)
|Justification||Needs qual to help explain significant, , non-significant, outlier or surprising quant results||Exploration is needed because:
1. no existing instrument
2. unknown variables
3. immature theory or framework
Well suited for exploring a phenomenon or when researcher wants to generalize to other populations, test emerging theory or classifications (p. 75)
|Variants||1. Follow-up explanations (quan results, insights need additional explanation)
2. Participant selection (where a sampling of representative outliers are selected for follow-on inquiry)
|1. instrument development model
2. taxonomy development model
Feasible for single researcher
2 section report of results
Supports both single and multiple phase studies
Appealing to quan researchers
|1. easy to design, describe, implement and report
2. although initial emphasis is on qual, the quan phase makes it easier to appeal to quan audience
3. both variants supports multiphase studies well
|Challenges||1. Time consuming
2. Decisions on which individuals to use by phase w/justification
3. Difficulties with IRBs
4. Deciding which results to explore
5. Specifying criteria for follow-on inquiry (before or after results?)
|1. time consuming
2. difficult to specify phase 2 construct for IRB prior to phase 1 results
3. deciding up front which individuals to use in phase 2
4. which data to use in phase 2 instrument
5. deciding relevancy of phase 1 results for phase 2 taxonomy
|Timing||2 phase sequential model||2 phase sequential model|
|Weighting||I think the QUAL(quan) model is more likely. This design relies on at least a mature enough state of theory to allow for initial quan inquiry, but we are more concerned with the interpretation and application of insights than in model or theoretical validation||the equal weighted choice is more logical; the desired outcome is an improvement to state of theory (quan) by either a better instrument or by an improved taxonomy (ontology). Yet the reliance on initial qual inquiry as a guide makes it at least co-equal to quan.|
|Mixing the data||Either Merging or Connecting is more likely than embedding. Embedding implies a single phase, whereas this is defined as a 2phase design. The improved explanation of initial quan findings is how the design could be “connected”. If the interpretation or meaning making is intended to create “rich description” then either variant of merging is logical||Connecting is by far the most logical design choice, as the 2 phases are explicitly linked; quan follows qual and the connection is either an instrument or a taxonomy.
There is a distinct “manufacturing or processing” aspect to this design, which does not seek to produce a rich description that is a blend, but rather produces a better quan framework as guided by the initial qual inquiry
Research model 1: Explanatory:
Research model 2: Exploratory:
Analyzing the data:
In both models of mixed methods design the quantitative data would be subjected to power analysis, tests for relationship and causality. The quantitative hypotheses are framed in the form of null hypotheses in order to determine if there were differences that could be attributed to a difference in instruments and what they are measuring (existing survey vs the Noel-Levitz survey); through time series tests to see if there is a treatment effect, and with the samples subjected to control variables to examine the effects of demographic, career experience, educational goals and faculty specific effects on the measures of satisfaction and importance.
Qualitative data would be subjected to thematic analysis according to the practices of the grounded theory, narrative inquiry and PAR traditions/ Narrative inquiry traditions are especially important here as outlined in Boje (2001).
Analyzing the mixed data would be drivcefn by the specific design selected as noted above.
Theoretical analysis of the consequences of choice in mixed methods design
Both designs would be interpretable as providing a deeper insight and understanding than a study restricted to either of their individual qualitative or quantitative components. The functional definition of mixed methods (Creswell & Plano Clark, 2007, p.5) would lead decisionmakers, particularly of the pragmatic worldview, to ‘receive the wisdom of experts” and seek to straightforwardly apply the insights based on a justifiable belief that they now knew more about what was going on, and had in some fashion reduced the amount of uncertainty about the world around them. My central argument is that there are situations so complex and uncertain that no amount of research and conclusions drawn from best practices of the traditions of both quantitative and qualitative inquiry, and the best practices emerging from mixed methods as described by Creswell and Plano Clark. In fact my use of the word “situation” in the preceding sentence, is an implied assumption that there is such a thing in the real world as a definable “situation” or problem set which may be bounded and contained by a problem solving, decisionmaking entity. While this construct is the basis for the post positivist tradition, which has endlessly proven its utility in countless settings, it is normal for pragmatists to conflate utility with reality.
It can be argued that there is could be a tacit agreement between constructionists and post-positivists to allow each other the primacy of method and interpretation based on typical problems, and indeed much work is being done to increase cross-discipline understanding, cooperation and integration. The common assumption between these two worldviews is that the end product of such effort is a measureable increase in our knowledge of the world as it is, from which we may exert more control and prediction by having reduced the amount of uncertainty by some amount. This tacit shared assumption I submit is expressed through the research practice of pragmatists who are “naturally” drawn to the mixed methods designs and practices described so well by Creswell and Plano Clark. Given the fertile and as yet only partially explored areas best suited for mixed method research it would be natural for the deeper philosophical theory or theories of mixed methods to be postponed, much as Smart, Feldman and Ethington (2006) found a willingness for researchers to revert to their preferred and more easily measured research domains and begin to neglect the messy and challenging issues of environmental factors affecting student success. One is reminded of the story of the man who’d lost his key in a dark alley but was searching for it under the streetlight because the light was better there.
I am arguing that there are situations where even mixed methods are properly and rigorously applied, and interpreted in best professional practice, that the insights may serve only to help decision-makers appreciate the vastness of what they do not understand, and better act within an uncertain environment, humble in their ignorance, yet moved to action from values and on the basis of principles informed by the best practice of inquiry.
It is my contention that in those situations described so aptly as “wicked problems” by Rittel & Webber, (1973) that a deep theory of mixed methods may be developed that is co-equal to that of qualitative and quantitative methods. I argue that mixed methods not only are useful in solving less-than-wicked problems, as described by Creswell and Plano Clark, but most appropriate to engage with uncertainty and complexity for the express purpose of appreciating deeply the current situation. The deep theory of mixed methods I anticipate would require explicit inclusion of all 4 world views, since there is no a priori basis for excluding any of the 4. I thinkit quite likely that a reasonable assumption of a deep theory of mixed methods in fact could require an explicit inclusion of the best practices of each world view in some fashion, details to be determined, of course.
The shift in epistemological perspective seems important to me, and which should be developed in tandem to the directions for improvements in design and pure method described by Creswell and Plano Clark. Checkland’s application of soft systems methodology, artfully describes “learning towards success” in a satisfying way (Checkland & Poulter, 2006).
The best expression of the theoretical stance towards irreducible complexity intersecting the human need for the state of nature or through any objective criteria (Boje, 2001) and in the work of Hayden White (1987) concerning the relationship between narrative discourse and the historical representation. These insights are causing me to reflect deeply on my own essentially pragmatic worldview and its underlying assumptions, and lead me inevitably back to the proposition that we need the methodological theory of mixed methods developed simultaneously with that of its design choices and specific methods.
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There is general agreement that Ted Williams was the greatest hitter in the entire history of baseball.
He brought a science to the practice of hitting, a committment to the informed practice of his craft, a deep understanding of his strengths and weaknesses as a hitter. These combined with his natural physical ability to produce a hitter whose like will probably not be seen again.
I want to focus on his approach to hitting and his keen insights to his craft which I think directly apply to our craft of trading.
Williams studied every at bat and every swing, and developed a matrix of his personal strike zone which showed what his average was in every region. His strike zone measured 7 baseballs wide by 11 baseballs tall. Knowling his average for each of these areas helped him abide by his first rule of hitting: swing at good pitches. If you chase bad pitches then that’s what you will get from professional pitchers.
He advised that you also had to do your homework: preparation gets your mind right. I equate this to our preparation phase of trading, which includes knowing the market classification, the patterns that are working, the oversold or overbought condition in the short term, amd the specific volatility statistics of the market and our preferred targets.
Williams’ final piece of top level advice was to be quick with the bat. Being quick in action means you can wait a bit longer to commit, you will be fooled less, and you will be more confident in your execution. We can apply this advice by streamlining our decision making process by rehearing, by reducing our required information to the minimum needed to act, and by anticipating events in order to have a plan of action worked out ahead of time.
It’s remarkable how similar the keys to high performance really are between different fields of human effort.
A friend of mine who is seeking to develop his skills as an equity trader asked what book on trading he should read if there were only one.
I started to think about the different masterpieces I have read and have applied in my own trading. There are masterpieces of fundamental analysis, of technical analysis, of trading technique, and investing strategy out there. It was a daunting task to settle on just one.
When it finally hit me, though, everything fell into place. There is one book that is so powerful that it stands out head and shoulders above all others to such an extent that it is not even close.
It’s a book that has a direct effect on the trader no matter what style, time frame or technique is being applied. It works for men and women, for any kind of trader in any kind of market.
Its’ a book that bears reading and re-reading and will always allow for new insights and nuances.
It’s a book that adapts to you and your emerging style.
It gets better the more you use it.
It’s not cheap but it IS free.
It will reward you based on the amount of time you put into it. It will perfectly mirror your needs of the moment and help you find your strengths and weaknesses.
You can buy it in any store that sells office supplies, and while there is only one edition, it can fill many volumes.
It tells many stories, and the plot will often change before your eyes. It will take you to places you never imagined, although there is a thread of familiarity that ties everything together.
In short, it contains everything you will need to be successful as a trader if you put the time and effort into it.
Naturally, I am speaking of your trading journal, an intensely personal unique approach to how to trade the markets.
I’d suggest that the time and effort you put into refining the craft of journaling and reflection will be directly proportional to your continued success as a trader.
So, if there’s only one book for you to read and study as a trader, that’s the one.
We know from cognitive science and learning theory that humans are storytellers by both nature and nurture. Knowing this about how our brains are wired can help us in a couple interesting ways as lifelong traders and learners.
Generally it is easier for most people to learn when the new information is presented in the form of a story. Therefore, when you are looking for new information about how to trade effectively, you would be well served to attend to the stories the teacher tells, and check to see if the story resonates with you.
If you can’t “get” the story, it will make it very difficult if not impossible to make sense out of the details.
If you “get” the story though, you have a storyline that acts as an organizing structure or “schema” for you to attach the new data to.
The best stories for learning are real, short, interesting and human. That makes it easy to see how the new information can apply to you. For teachers, this means that you will improve your practice by adding short, sharp, engaging stories of real people in similar situations to where your students will be heading in the future.
Your stories will be even more powerful when they touch the emotions and provide an incentive to achieve a favorable emotional state. That’s why most of the powerful selling techniques tell a story about a very desirable emotional state that can be achieved if only the customer will exchange money for the magic bullet.
As traders, you might consider trying to develop the “story” of a stock or an Exchange Traded Fund. By proposing a “storyline” that the target “could” follow, you can then identify price points where the storyline is violated and you can exit quickly because the target is following a different path or script.
There are extraordinary possibilities for improving your trading and learning performance by appreciating the powers of stories. Can’t you just imagine it!?
The market goes through changes all the time, as market participants and their methods and objectives change through time. Sometimes trend following will dominate, sometime reversion to the mean trading will be effective, other times channel trading with strict profit targets will work.
It is normal for traders to develop preferred methods of training, based on our experiences and our preferences, and our style of trading and our chosen markets. It is normal to have periods of time when your preferred methods are especially effective, and other times when it is heavy sledding.
As market conditions and patterns change it is normal to see a change in how effective our chosen methods perform. Since market conditions change in unpredictable patterns and over changing periods of time, it is never easy to formulate rules that govern how to navigate these transitional states.
If you are looking to be a full time trader, you can expect to have to routinely sense and adapt to changing market conditions on a regular basis. It is worthwhile then to develop a mind set that expects this kind of routine change, and a system to routinely manage the transitions.
Here are some things you can do to help you stay in tune with a dynamic market
1. Reduce the frequency of your trading so that you only trade patterns that strictly meet all of your preferred criteria.
2. Trade at reduced risk levels and reduced size until a new pattern of performance emerges.
3. Monitor the moving average of your trade results to be alerted to reduced performance quality which can signal a change in market conditions sooner than is evidenced in individual technical indicators.
4. Have a variety of systems and strategies that are known to outperform in certain market conditions, so that your action plan adapts to a changing market.
5. Use adaptive risk measures that fine tune your system so that your system parameters remain routinely aligned with market conditions. Having trailing stops that are a function of Average True Range (an adaptive market indicator) is an example of this kind of adaptation.
To extend the metaphor of “Trading is like Driving” a little further, you could think of the market’s pivot points to be like lanes on the highway.
When you are driving on the Interstate or even just in town, the lane markers have come to take on an important meaning ion the minds of every driver ion the road. This meaning is something created out of the minds of drivers everywhere and acted upon as if they are true, not because of any intrinsic meaning inherent ion the lines themselves.
Behavior of drivers changes as they approach lane markers, not because the strips of paint have any physical ability to affect the motion of the car or truck, but because the mental model of driving is so firmly ingrained in the minds of all drivers. The lines act as if they constrain the movement of traffic within their boundaries.
An observer from Mars might wonder what magic powers these lines of paint have, but the magic is in the mind.
In the same way, pivot points affect trader decisions on a daily basis in the trade of the broad market (and by this I mean the S&P 500 and its ETF, symbol SPY).
Pivot points, briefly, are support and resistance levels calculated by traders in the futures pits who use these as reference points to judge the theme of the day and make decisions about how to buy and sell the ebb and flow of prices throughout the day.
As price approached these pivot points. Price tends to converge and go into a congestion zone of backing and filling. Breakouts from these pivot points can be volatile and fast and can offer the best reward to risk ratios of any trades during the day.
Because large cap stocks and ETFs that track broad market regions and sector trade with a such a high degree of correlation with the broad market, it is a definite edge to the agile trader who can monitor the relationship of his preferred target of the moment to the broader market movement during the day.
When there is high correlation, you will be able to see whether your target or the market itself seems to be making the first move. Once you identify the leader, you can trade the follower more safely, since the leader, where you have no money at risk will give you a heads up on likely moves in your preferred target in the near future.
Many times this early warning can be a couple minutes or as few as a couple seconds. In any case that is enough edge for you to dramatically improve your bottom line in the conduct of the daily trade.
Bottom line; pay attention to pivot points if you are trading large caps and broad ETFs.
There are a lot of reasons to trade large cap stocks and the exchange Traded Funds (ETFs) that track the broad sectors and regions of the world. It’s not without its tradeoffs, but for a lot of new traders it can make a lot of sense.
You will have to give up the goal of catching the next Google or Microsoft as a small cap which, against all odds, rockets to the very top of the market food chain.
The trade off is worth it for some people because of the following kinds of advantages that you get by focusing on the largest companies in the world and the broadest regions.
The advantages include:
1. Very narrow bid-ask spreads. This is the difference between what buyers are offering as their best buy price and what sellers are offering as their best sale price. By minimizing the slippage between the bid and the ask, you will not be penalized as much as you might be on a thinly traded stock or ETF where the bid-ask spread can easily be 10 to 20 times wider.
2. Liquidity: because of the enormous size of their market capitalizations, it is very hard for these companies to go bankrupt overnight. It can happen of course, but remember that the fall from grace of GM and Enron played out over many months, giving agile traders many opportunities to either protect them from harm or to profit from their fall.
3. Analyst coverage: because of the sheer size of the companies and the institutional interest in them, you can be sure that large cap companies have plenty of analysts covering their every move. You can debate on the merits and quality of analyst coverage, but if that is where you perceive your edge, then large cap companies have many analysts to choose from.
4. Institutional money must buy large caps in order to get fully invested and meet the fiduciary requirements of their stated investment strategies. Some of these institutions are so large that they simply must focus their buying and holding on large capitalization stocks, and so you can be sure that there is always a buyer in size out there somewhere to act as a cushion of safety for you.
5. Orderly behavior: because of the sheer numbers of interested buyers and sellers, large caps tend to trade in an orderly manner throughout the day and because they trade in tandem with the broader market to a large extent, you can effectively monitor positions with less concern over intraday volatility catching you by surprise.
There are as many styles of trading as there are traders. Trading large cap stocks and broad ETFs though is certainly a way that should attract many new traders looking to begin mastering the craft.
I was giving my teenage daughter some advice about how to survive on the road. As a newly licensed driver, she was naturally apprehensive, because this is a brave, new world for her.
As I heard myself giving her guidance from 35 years of successful driving experience, I was struck by how similar it was to what I try to share with people who are beginning their journey as traders.
Here are some common points to consider, as you look to incorporate perspectives that have served you well as a driver into the equally exciting, dangerous and yet rewarding world of trading
1. Half of the other drivers are below average. Some of them are also drunk, crazy, stupid, preoccupied, unstable, distracted and some are about to suffer a heart attack. Never project your own state of mind onto the person taking the other side of the trade. Just assume they are capable of doing the most extreme and surprising behavior at any time.
2. Disaster is waiting just around the corner, and if you are prepared, alert and ready, and your equipment is serviceable, you just may have an opportunity to make a difference if you keep your wits about you.
3. When you are driving, drive. Be in the present. Pay attention to what’s happening and also to what else might be happening.
4. Don’t drive when you are disturbed, crazy, drunk, sleepy, unfocused, angry, or otherwise occupied. Know when you should not be behind the wheel. If there is any doubt in your mind, don’t drive, don’t trade.
5. Keep your equipment inspected, serviceable and complete with redundant safety measures.
6. Know and respect the rules of the road, and the market.
7. Don’t chase, don’t race, don’t drive like it is there for you to have fun, although there is a certain enjoyment and satisfaction available when you drive well and everything is fine. Just don’t forget your purpose is to get to your destination in one piece and unharmed, and without having caused harm through negligence or inattention.
8. Always have an out. Know where your safe spot is whenever you are driving; Which direction will you go if something happens NOW and you must make an instant decision.
9. There are times when the road and weather conditions are more important than your purpose in driving right now. Know and respect your limits, you can go there tomorrow.
10. Know where you are going and why, and the different ways you can get there. Monitor road conditions along the way and give yourself room for surprises and detours. Don’t drive until you are on the edge of empty. Take breaks and keep your reserves topped off.
11. Always buckle up, because there’s one coming that you won’t be able to see despite your best efforts.
12. Old traders didn’t get to be old by being dumb.