Hello everyone, Mark Justice here. This week we have a bonus edition of the Rookie Corner blog where one of our students, Mr. Cody Maki shares some insight on applying the scientific method to trading. If anyone else is interesting is sharing their thoughts, approaches or strategies they use (or anything else for that matter drop me a line at team@tackletrading.com. We always welcome guest authors and we build this tremendous community we have at Tackle Trading.

“The man on top of the mountain didn’t fall there.” – Vince Lombardi Jr.

My name is Cody Maki. I started trading about two years ago and became a student of Tackle Trading about 2.5 years ago. In college, I studied analytical chemistry and toxicology. I have a Master’s degree in Toxicology with 3 published scientific papers. During my graduate studies, I noticed a lot of similarities between science and trading.

From lab computer to trade computer, both need a standardized method.

I wanted to write this blog for all of my fellow scientific traders out there, or anyone that has ever taken a science class for that matter. So basically, that’s everybody…

In proper science, every experiment must be done using what’s known as the “scientific method.” We all remember this from high school chemistry. This is the, “What is your hypothesis?”, “What are your methods?”, “What materials are used?”, and “What are you results and conclusion?” series of questions. The memories of teachers requiring you to write out every step in your lab books, regardless of how redundant it felt, haunts us all. The reason this method was drilled into us as a procedure is that the scientific method is methodical. That is, it’s a standardized method to produce consistent results.

Consistent results… Hmmm, sounds like something that all traders would like to have.

I want to take some time to compare the scientific method to using a trading method and hopefully bring more consistency to other students’ trading.

First, what are the steps of the scientific method?

Ask a question- Your overall goal in the form of a question. What do you want to do or discover?

Do background research- Look into the scientific literature to see what research is already published in regards to your question. Find out what still needs to be looked at.

Form a hypothesis- A speculated reason or answer to the question you proposed.

Test with a standardized method- Use a set method that has been tested and is trusted as a means to produce results.

Analyze results- Record data in a notebook and look objectively to see whether or not you reject the hypothesis.

Form a Conclusion- Summarize how your results support or contradict your original hypothesis.

Repeat

Now this seems pretty similar to the way we all put on trades using the 7 Step Guide.

(https://tackletrading.com/course/7-step-guide-successful-trading/)

Step 1: Start at the Top of the Markets- Get a read on what’s happening on the technical charts, in the news, and around the world.

Step 2: Choose a Trading Strategy- Identify which strategy is best based on the market conditions, your analysis, your portfolio, and your personality.

Step 3: Find and Analyze Potential Trades- You’ll need to find and analyze potential candidates to invest or trade with.

Step 4: Plan the Trade- Planning is crucial for success.

Step 5: Place the Trade- Time to place the investment in your account.

Step 6: Manage the Trade- Manage trade daily.

Step 7: Journal the Trade- Log it in a journal and keep a record of how each investment has performed

How do these 2 methods compare? And can we can use the scientific method for trading?

1. Ask a question – How can I make money, protect capital, mitigate risk, etc.
2. Do background research– Start at the Top of the Markets Daily routine, looking at market, news, screen stocks for set ups.
3. Form a hypothesis– Are you bullish or bearish? Choose a trading strategy, find and analyze potential trades
4. Test with standard method– Use methods and Trade Rules that have been shown to produce results such as the E.T. method and the rules associated with it.
5. Analyze results– This is your trade management. Record in trade journal! Is the trade going the way you wanted it to? Do you get triggered in or stopped out? Should you take some profits?
6. Form a conclusion– Was it a good or bad trade? What can you adjust to improve results next time?
7. Repeat

(And for those of you who prefer things in table form, like myself,  the table below also illustrates the comparison.)

Both of these seem to follow a similar system that produces consistent results. So what happens when you fail to use one of these systems?

In science, if you deviate from a standardized method, the results you obtain are considered null and void.  The reason that the scientific method is important is so that any experiment or results can be reproduced and built on by other scientists. Thus, if any scientific data is flawed, it can set back the scientific community by both time and money. Sound similar to trading mistakes setting you back time and money?

Now, in trading your results may not be void and no one is going to get onto you for breaking rules. But, the market doesn’t care if you make mistakes – It will gladly take your money.  Additionally, if you don’t follow rules and methods, how will you know whether your results are dependable? Does it matter if you made or lost money, if you have no idea whether it was pure luck or skill? Your results don’t matter if there is no method behind them.

One thing is for sure – variability and randomness will happen. If you want to become a proficient trader, you need to follow a set standard of steps. You need to be recording and tracking your results. There’s a reason why the scientific community stresses the importance of using the scientific method. Just like there is a reason our coaches stress using a daily routine, trade journal and trading methods.

Follow a method that works, and put in the work to get the results you want!

I hope this can help bring everyone some consistency and profits!