Thursday, March 27, 2014

Becoming Evidence-Based in Your Trading Business

Here's a business article I particularly like, covering the importance of continual innovation, but also the continual measurement of the outcomes from that innovation.  By becoming evidence-based, traders ground their development in objective results.  The example in the article of the health food store owner making ongoing changes in his business processes and measuring results--right on down to how and where his food product were displayed--provides a nice example of an evidence-based approach to improvement.

Conversely, take a look at this article about how psychotherapy has been on the decline in recent years.  One theme that dominates is the failure of therapists to embrace the research base of their field.  For instance, there is strong evidence that certain, behavioral approaches to the treatment of anxiety disorders are more effective than generic talk therapies.  Many therapists, however, wedded to the more subjective and relationship-based aspects of their work, do not employ those methods and instead offer the services that are most subjectively gratifying for them.

I fear that many traders are more like these therapists than the health food store owner.  They fail to innovate and, even when they try something new, they are not rigorous about tying process changes to changes in trading outcomes.  The evidence-based trader keeps score and grounds trading methods in carefully observed and tested approaches.  Before we can "do more of what works", we have to measure what works.  If we don't keep score, markets will keep score for us.

If you're running your trading business well, you're breaking it down into component processes and examining how well each process is working for you.  It is out of those observations and measurements that you arrive at focused innovations and effective ways of executing those.  How to break your trading business down and make evidence-based changes will be the focus of an upcoming post.

Further Reading:  Sustaining Innovation