An F-16 just few overhead and I cant help but think of Col. John Boyd and his OODA Loop.

Col. John Boyd was the loudest, most obnoxious United States Air Force fighter pilot from the mid 1940’s to 1970’s – hell probably ever. He was commonly known as“40 second Boyd” due to his very public and ongoing bet to anyone that he could be put in a compromised position (with the opponent on his tail), reverse it, and be on their tail in 40 seconds or less – which he never once lost. Col. Boyd was a master tactician, he was so good that when he attended and finished the elite FWS (Flight Weapons School), which the Navy later copied as “Top Gun”, instead of going back to his squadron they asked him to immediately stay on as an instructor. Simply put, he was the best of the best. But above all of this, Col. Boyd developed the OODA (Observe, Orient, Decide, Act) Loop – one of the most influential and respected combat decision cycles that I also believe can be used in helping us make better strategic trading decisions.

Lets take a look at each component to see how it works.

Observe

The Observe stage is the constant gathering of as much information, from as many angles, as possible. Fighter pilots would of course be looking at their instrument panel; locate the sun in relation to the enemy; make assumptions on their level of skill, training, equipment; consider outside factors that may influence the environment; and test whether their predictions and reality are matching up.

As a trader in this age of technology we do not have a lack of information at our finger tips, however it would be wise to observe not only what our instrument panel (platform), or market analysts are telling us, but what we are telling ourselves as market conditions change as well.

Orient

The Orient stage takes the information gathered and frames it based on our past experiences, education, or even genetics. It interprets the information gathered based on our individual perspectives and should constantly be active as new information continues to come in.

This is one of my favorites because it can be directly applied to chart analysis. Ever see a Stochastic trigger an overbought condition only to stay there and get worse for an extended period of time; or a .382 Fib retracement break to then fall past the .618; or see the most beautiful flag formation turn into a double top, or H&S? In each of these cases new information continued to come in from the Observe stage so the trader who was more aware of their perceptions and could revise them the fastest could survive.

Decide

The Decide stage is your most up to date guess that constantly gets reevaluated as new data points feed in from the Observe stage and are reframed from your developing Orient stage.

Act

Act is the final stage where you carry out your decisions, be that of further action, or even inaction. From here the loop can cycle back to Observe again as your action can now be used as another input for the Orient stage – reframing.

FINAL POINTS

How could Col. John Boyd win every single 40 second bet with any pilot that ever challenged him, even when they all knew his process? John knew the key to his success wasn’t necessarily the process itself, rather that nobody could cycle through it faster – and you can bet he’d tell you as much. I believe any trader willing to learn and adopt the OODA Loop will be a better trader because of it.