The military describes managing current operations as command and control. One of the most important concepts in command and control is the idea of span the control.
Span of control describes how many simultaneous, subordinate operations you can successfully manage at appropriate level of detail given the current situation of uncertainty, stress and pressure.
When you are inside your effective span of control, it is easy for you to be aware of all the important events occurring in your environment and for you to make decisions in time to have a positive effect on the outcome.
When you are at the limit of your span of control, there is a very real sense that you are fully engaged in the current operation. You can feel the boundary condition and you may even feel a sense of being about to lose control.
Think of a juggler who can successfully juggle five objects at once. Managing between one and four objects represents little to no challenge beyond the normal attention to detail required for any juggling. At five, the juggler will feel a sense of total immersion and full engagement. The juggler may have difficulty looking at events or objects outside of the current field of vision. There is a feeling of total commitment in the moment and the juggler realizes he must maintain total concentration.
To add one more object into the mix would be to violate the juggler’s span of control, and while he may be able to maintain the flow for a few moments, there is a very real sense of being overwhelmed and slowly drifting out of control until the number of objects overcomes his skill and they all crash to the ground in rapid succession.
Span of control for a trader relates to how many open positions a trader can effectively manage at the peak of uncertainty and still maintain effective decision-making.
Information is required to manage individual positions. When we exceed our span of control we are no longer capable of identifying required information, processing it, and acting upon it in a timely manner for best effect.
Therefore, it becomes very important for a trader to understand and appreciate the effect of their span of control upon trading performance.
The trader may have no problems trading according to their rule set when the trade is considered independently.
When you start adding multiple trades into the mix, however, the trader may experience a breakdown in performance and mistakenly attribute it to a psychological problem, when it is simply a cognitive load issue associated with span of control. It’s not that your discipline is breaking down, it’s just that you’re trying to do too much.
A weight lifter who is capable of bench pressing 200 pounds, and who tries to take on 300 pounds, didn’t suddenly lose their strength and discipline; they simply made a cognitive load error. Focus on your known capabilities under realistic constraints and behave accordingly.
Traders, know your limits!