A Grid for Traders

In 1966, Robert Mouton and Jane Blake wrote ‘The Managerial Grid: Leadership Styles for Achieving Production Through People’. In this blog I have adapted their grid to trading styles with a view to examining its application to trading.
Figure 1 shows the adapted grid.

07-08-2008-mb-grid.jpg

Figure 1 Adapted Mouton-Blake Grid

The grid has four corners; starting from the bottom left-hand corner and going counter clockwise, we have the boundaries ABCD. ‘A to B’ progress from a ‘conservative to aggressive’ trader; from ‘A to D’, the trader moves from ‘rule-based to intuitive’.

The uses for the grid are limited only by your imagination. Let’s apply it to position sizing for a ‘discretionary master trader’ who uses the ‘Ebb & Flow’ approach (See ‘Position Sizing 2‘) and trades the 18-day (monthly trend) timeframe. I’ll be speaking only from my point of view, others may have different views. The point is, we can all use the grid in different ways. (BTW by ‘discretionary’ I mean rule based with intuitive input).

  • Under ‘Normal Conditions’, the master trader would be somewhere long the mid-point of ‘AB’ and ‘AD’: mainly trading a ‘normal’ size based on his rules. Occasionally, his intuition kicks in and occasionally he increases his position beyond his ‘normal’ size.
  • Under ‘Ebb Conditions’, he reduces his size to ‘Half Normal’ or ‘Quarter Normal’ and tends to take only the ideal ‘rule-based’ trades (‘RC’ Cell).
  • Under ‘Flow Conditions’, he increases his size up to ‘Four Times Normal’ and tends to rely on his intuition, supported by his left-brain rules and analysis (‘IA’ Cell).

It’s important to understand that different traders at different stages of their evolution will use the grid differently. For example, a newbie 18-day trader is likely to reside in the ‘RC cell’ (Figure 1) with occasional forays into increasing his size (‘RA’ cell). The reason for this is ‘intuition’ is founded upon experience; experience , a newbie lacks. For this reason, he is best served by following his rules. Too often ‘intuition’ for a newbie really means ‘into-wishing’.

For the newbie moving into the ‘IC’ and ‘IA’ cells is fraught with danger. In the ‘IC’ cell, he is likely to take a lot of small profits and losses with an occasional blow-up.

I have found that the newbie ‘IA’ cell is the domain of the talented but ill-disciplined trader. He has a great feel for the market and the success feeds to larger and larger size until he eventually blows up.

So the newbie would obtain benefits from using the grid. What about other types of traders?: for example, what about an on-screen scalper? Well, he’d probably be operating in the ‘IC’ to ‘IA’ continuum.

The grid is useful for all types of traders. By knowing where we are on the grid at any given moment in time, we are likely to adapt our trading styles to suit market conditions and our ‘Ebb & Flow’ states. By adapting, we’ll improve our results.

2 thoughts on “A Grid for Traders”

  1. Ray

    In trying to understand your adaptation of the Blake Grid, I hope to apply your model to my trading.

    More about :

    The Managerial Grid is based on two behavioral dimensions:

    * Concern for People – This is the degree to which a leader considers the needs of team members, their interests, and areas of personal development when deciding how best to accomplish a task

    * Concern for Production – This is the degree to which a leader emphasizes concrete objectives, organizational efficiency and high productivity when deciding how best to accomplish a task.

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