Boolean logic is named after a nineteenth-century mathematician, George Boole. What is Boolean logic? It is a type of algebra where all values are either true or false. Boolean logic is used in computer science as it conforms to the binary numbering system that is the language of computer programming. In a binary numbering system each bit of information has a value of either 1 or 0.
How does this type of logic apply to trading? In trading you remove the guessing, predicting, and opinions and instead trade in the language of Boolean logic. For discretionary traders either you have a signal or you don’t. You have a good risk/reward ratio based on your stop loss and open ended profit or you don’t. Mechanical system traders are pure Boolean logic as their entries, exits, watch list, and position sizing are predetermined and then executed when the signals occur.
Using Boolean logic in trading is much like when a computer program runs, if this, then that. If this happens then I will do this. If my stop loss is hit then I will exit with a loss. If I catch a winning trade in my favor I will let the winner run until my trailing stop loss is triggered. This is the essence of reactionary technical analysis used by many of the world’s best trend traders. Logic is something to think about to replace relaying on emotions, ego, and predictions in trading the markets.
