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In chess, poker, and Starcraft there’s the idea of “tempo”. I’ve been thinking of how this applies to trading strategy.
The main theme of “tempo” is to force action, compress decision timeframes, and speed things up in order to win at a smaller timescale and more tactically so as to neutralize all long-term strategic disadvantages that accrue.
– In chess, tempo means to initiate the exchange of pieces, even when you lose out in relative value of exchanged pieces so that you neutralize strategy that benefits from the building up of complexity and passive position, in favor of simplification and forced action
– In poker, tempo means making bets that are larger and earlier in the betting sequences to win immediately or by forcing opponents into making a definitive choice, where mistakes can result
– In Starcraft, tempo means going for earlier rushes, not building up economic resources, and attacking rather than defending
In active trading, tempo may mean making large bets where you have higher probability due to short-term momentum of the underlying security or mania. Cryptos seem to benefit from tempo in making large bets and getting out soon (though the case could also be made for making smaller bets and holding long term).
There’s absolutely nothing better or worse in choosing higher or lower tempo meta-strategies, but it’s important to distinguish them and understand their strengths and weaknesses to think more clearly and choose the correct course of action that best matches that meta-strategy. More importantly, however, is what matches your own personality and preferences.
The strategy I’m taking with options trading is opposite to trading large single positions. Interestingly, it is both higher tempo in some respects and lower tempo in others. It’s taking smaller bets ideally closer to 1% of risk capital per bet, and scaling “horizontally” in terms of number of trials, as opposed to “vertically” in terms of larger bets on a fewer positions, and striving to achieve an infinite number of bets such that the implied volatility premium works itself out in the statistical long-term, much like the dealer or slot machine owner does in a casino. It’s lower tempo in that you’re striving to making non-forced boring…
