OODA Loops

Col.John Boyd of US Air Force was one of the most gifted and effective fighter pilot of all time. John Boyd understood the challenges of time pressured decision making and developed a decision making framework for combat situations. It is known as OODA Loop. The acronym OODA stands for Observe, Orient, Decide and Act.

The application of OODA is not restricted to warfare alone. It is applicable to Trading as well. Aim of OODA is to act fast. The right way is to decide and act fast so that more time can spend to observe and orient.

Observe. First step is to observe what is happening at the moment. Gathering relevant information happens during this stage. Almost always, under time pressure, traders forget to pay attention to the details. Better to simplify and avoid observing irrelevant information.

Orient. Once we gather the relevant information, the next step is to process it and position ourselves for a decision. Orientation will depend upon our beliefs and mental model. Observation and orientation will decide our trading edge. We have to ensure that our methods are based on the reality and not on illusions.

Decide. The next step is to decide a course of action. Depending on the gathered information make a decision to act.

Act. This is the final stage. Implement the decision. Once a decision is taken do not second guess or hesitate. Simply take action. Go back to step one and observe. Cycle through the OODA Loop.

Finally,do not hesitate to use the ejection lever if something goes wrong.  Ensure survival. We need to trade another day.