However you have come upon this loop, it is exactly that related to expertise development and is very seriously undertaken by the most elite in any endeavor where skill and effort are related to outcome. Guys like you.
I read your post and have been thinking about a respond for the past few days. It is a difficult topic and I don't pretend to be an expert in the field of becoming an expert. The "loop" that I've come up with is simply how I saw my own development, although day-to-day I don't sit there and analyse whether I am doing Step 1 or Step 2 consciously.
I also don't know if I'd classify myself as elite or expert trader. I think I am beating the general crowd, but I am far from knowing everything about every situation. I am like your local university's Physics Professor, rather than Steve Hawkins. And in turn, Steve Hawkins probably barely knows anything compared to the vast body of knowledge within the entire universe.
I wil attempt to respond to your questions, but I apologise in advance that it will float randomly between general 50,000 feet views and nitty-gritty detailed specifics.
My first question related to high and low uncertainty environments and the application of expertise loops. Something like chess has no uncertainty. All the rules are known and never change. Then you get into financial markets where many things don't make sense for long periods of time. Feedback loops are long and mashed up with other factors whose interaction is weird and often never seen before, or only slightly similar. Worse, as soon as someone cracks the market, they get cracked as the markets figure out how they are doing it and replicate it. That's high uncertainty. You have a hard time figuring out probabilities at all and outcomes are often a...crap shoot.
Yes market is highly uncertain.. but the ultimate objective of trading (and investing) is not truth-seeking. It's just making profits. So you just need to be right some of the time, make as much as possible while you are right and manage the risk while you are wrong. It's starting to sound like some generic technical trading strategy, but any looped learning should focus on improving these three things.
You work in trading with pretty short horizons. My understanding is that this is pretty noisy stuff but your report a month or so ago of your second year in Propex (?) suggests that you are achieving high hit rate and risk managing very well. Even your trade frequency (which isn't massive for a trader) basically backsolves for very nice average return if you are betting symmetrically without elevating exposure into losses as a pairs guy. If you are martingale, then I'd come to a slightly different conclusion, but still positive of course given the record you have posted and the limited market directionality.
In my world, that's an amazing outcome. We don't trade with anything like that kind of frequency but we didn't enjoy the liquidity advantage (at the time...hehe).
No I am not martingale and I doubt any prop shop would be in business for long letting someone trade martingale with their capital. The result I posted was a combination of a pairs strategy and outright intraday trades. The outright trades were ~20-25% of the total P&L and does help to smooth the equity curve even further. And my size, while large relative to a private trader, is still tiny tiny in the whole scheme of things.
Question(s): Efficient learning is really tough in this type of environment. Logically prepared strategies with strong backtest fail with alarming regularity. Stuff you think is worn out suddenly springs back to life without warning.
How do you cope with such high uncertainty when seeking to learn?
Do you find that your worldview changes a lot or only incrementally or all over the place depending...
How different is what you are doing today from, say, 6 months ago, 1 yr or 2 yrs ago?
I'd describe my trading as evlolutionary... continuous learning and adjustments on the fly. I am always doing something different from what I was doing before.
For example, I used to pair up the iron ore miners, but I've pretty much stopped pairing them since early 2014. So how did I "learn" about this changing market and "improve" my trading by avoiding the sector?
1). I made observations that company share price correlations have broken down along with the iron ore spot price falling
2). I developed hypothesis that, with lower spot price, the margins are getting smaller and fluctuates more in percentage terms. Different producers are affected differently so share price correlations in the past should no longer be relied upon
3). I investigated the facts... it was handy that plenty of reserach analysts cover iron ore producers and their costs. It was clear some companies are still enjoying profits while some will struggle to survive.
4). I made the adjustments to stop trading them.
But as I said, all these were simply happening as I watch the market everyday. It's only when I have to put it in writing that I spend time analysing what I actually did. I didn't wait for my system to generate a string of losing signals before I stopped trading these pairs, as a slightly lazier and more stubborn pairs trader might have done.
And this is just one exmaple on one factor influcing one sector. I would go through the exact same loop when other things change... like gold, or rising $USD, or pending regulation changes, or overall market volatility changes etc. I am definitely not attempting to optimise my trading by finding the absolute truth or valuation or anything like that, I am just trying to continuously improve my win rate and reduce my losses by observing widely, applying some logic and verifying with facts.
What is your standard of proof required to change?
Pretty low. These days I will change when it "feels" right to do so. I don't think you can have a hard set of rules (like X failed trades in a row) because chances are they'd be too slow for both switching off and switching things back on.
However, the iron ore example is a simple one and it happens cyclically and there are plenty of parallels to learn from. If a new unknown situation arises and affects things more subtly, then I'd probably get hit few times before I react to what hit me (if I ever do).
How do you monitor efficacy of your approach to learning?
Not really in a structural manner. I guess I do ask myself... do I feel mostly in control, or do I feel something is broken. If I am in control, then I am learning/adjusting just adequately to keep on surviving. If I feel out of control and I don't know why, then I may be missing something. And the practical way is simply reduce the size and wait for it to pass. It's like driving to a brand new place... you slow down until you become familiar with the place, or until you get out of the foreign place and re-enter a familiar place.