Week 17: Minimum Effective Dose

I’ve heard the term “minimum effect dose” used in medicine, exercise, nutrition as a way to describe the least amount of input (or work) to get the most results. I first heard this term from Tim Ferriss and it resonated with me because it was a good fit for what I was trying to achieve with trading.

I’ve always had this term in the back of my mind when optimising my active trading hours. You can trade 5 days a week from morning until night but it’s not a clever way to trade and there will be consequences (physical and mental health).

Good trading opportunities happen every day but they occur at a different times. As a discretionary trader, it’s impossible to trade every single opportunity so a smarter way to trade is to try to capture the major of opportunities and ensure that they give the highest excursions. There are many ways that this can be done but it will depend on the way you trade.

Here are a few ways I found my minimum effective dose:

1. Preparation –  The first thing I did to find my minimum effective dose was to track my trades. I tracked setups, the time of day they occurred and their maximum excursions. To be able to make a good decision requires good quality data. This is such as basic principle but I often see traders deciding not to trade Mondays or Fridays based on nothing more than a “feeling”.

2. Time – I didn’t want to be at the screen 5 days a week for hours on end so I decided to find the best times to trade and also cross referenced them with where they appeared on a chart. I used a mix of time and price to anticipate when I should be active and when I should be as far away from a keyboard as possible.

3. Set up – I stopped taking trades that produced low risk rewards, required too much screen watching and/or did not appear frequently enough. I wasn’t interested in these trades because they were a drain on time even though they were profitable. These trades would be better for automation but they were complex and were not a good fit for discretionary trading.

You can only optimise for minimum effective dose after you have a solid trading method and feel comfortable trading it. If you are still searching for consistent profitability then you will probably want as much screen time as possible as I don’t think there is any other way to improve.

Thoughts on The Week

There were a lot of gaps at the start of the week due to French Election news on Sunday so I was looking for trades in the gap close direction.

This week required a lot of patience. Even though my directional biases were good, I didn’t feel in sync with the markets at all. I missed the best trade of the week which was a short on EURGBP.

My focus could have been better and it felt like I wasn’t working hard enough. I only traded 1 or 2 hours per day this week. For the first half of the week it was simply a case of checking in and knowing that nothing would set up as most markets were simply too far away from prices that I wanted to do business at.

I’m glad the week is over – I’m not trading on Friday because I’ll be making my way to London to watch the Joshua vs Klitschko fight at Wembley. I look forward to returning to the markets refreshed and ready to perform.

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