The ICE Method for Prioritizing Strategies

As traders gain experience, the problem shifts from not having enough ideas to having too many ideas competing for limited time and mental energy. Without a system, this abundance quickly becomes overwhelming and leads to paralysis or procrastination.

We discuss the ICE method - a simple scoring method to determine which ideas to work on first.

Spreadsheet Link https://docs.google.com/spreadsheets/d/1iWG87jZ7KiANQzH9O8KwgtRRl5Wcd60Q/edit?usp=sharing&ouid=112987133391354450813&rtpof=true&sd=true

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

Creators and Guests

Host

Dave Mabe

Host

Michael Nauss

What is Line Your Own Pockets?

A weekly show for systematic traders who want to make more money from their trading strategies.

Michael: 00:00

Alright, everyone. Welcome back to another episode of Line Your Own Pockets. Personally excited for this one because Dave's gonna gonna help me out with a with a problem that I've been dealing with a little bit, and I'm sure a lot of the audience has as well. This is something that comes up right after you've kind of figured your way around anything. This is the next thing that seems to kind of pop up.

Michael: 00:21

So why don't you talk about what we're going go over today?

Dave: 00:25

Yeah. So, you know, as we've said before, beginning traders tend to not have a lot of ideas. They're starving for ideas. But as soon as you start getting some experience and have some success, all of a sudden, the spigot opens up and you have lots of ideas to work on, to backtest on. So the question is, how do you prioritize those?

Dave: 00:50

It can quickly become very overwhelming when you have a whole bunch of stuff that you know you need to do, you know you need to work on, competing for your time. We've only got, of course, a finite amount of time. So how do you decide what to work on? And we're gonna talk about a framework for doing that.

Michael: 01:09

Well, and that's yeah. So I kinda talked about it already, but that's you get these periods of time and they seem to come and go like almost randomly, where it's like every time you take a shower or walk the dog, you've got a thousand ideas. I don't know what causes it kind of one way or the other, but at least for me anyway, there's every now and then where I'm like, I've got so many cool ideas, things I want to work on, different timeframes and assets and all of this. And yeah, then you sit down and you say, okay, well, like you mentioned, I've only got a couple hours each day to do what I need to do. And I'm a pretty staunch believer about the whole deep work thing, right?

Michael: 01:51

And it's a great book if you want to read it, but basically they've studied a lot of top performers and there's only so much kind of mental bandwidth you have to do like serious work each day, and it sits around two to four hours, I think, depending on the person who just before you gotta go and kind of recharge those batteries. So, yeah, it becomes a big problem. It's a nice problem to have. Right? I get more frustrated by the other problem where maybe I don't know what to work on.

Michael: 02:20

But I think this one can be just as debilitating because for me, it's like if I got too much going on, I end up doing absolutely nothing. So it's, you know, pairing that down into what's gonna be the most beneficial in the short run, I think is huge.

Dave: 02:33

Yeah. I think it's it could feel you you get this feeling of just overwhelming, like stuck in the mud. You When can't we have so much stuff you know you need to work on and you don't have enough time, there's some threshold you get to where it goes from excitement to just completely overwhelmed and you're just completely deer in the headlights stuck. My thoughts have evolved on this over the years. So back when I was CTO of Trade Ideas, it was very clear to me that we needed a way to keep track of all the features that we wanted to add to the software and the things that we wanted to do.

Dave: 03:22

And a lot of those were getting dropped. We would talk about an idea, but then it would just get dropped and we wouldn't remember it until six months later, say. So the important thing at that point was to have some system for keeping track of those ideas because those ideas sometimes are very fleeting. They could be very good ideas, but they'll just come into your head and then leave. And if you're not if you don't have a good system for keeping track of them, then there those are gonna be lost.

Dave: 03:52

So I knew that was a big risk.

Michael: 03:54

Well, and I'd go a little further there. I think I think the ideas that just pop out of nowhere are quite often the best ones. You know, if you have 20 people sitting around a table saying, Well, how do we make this company make more money? I generally have noticed that nothing good comes from that. It's the one thing, Hey, would be super cool if and someone just blurts it out at a meeting, or again, you have the shot, the thought in the shower or something.

Michael: 04:23

And yeah, if you don't capture those, they're gone and you kind of don't know how many of those have kind of come and gone without you noticing.

Dave: 04:32

Right. And so I'm going to get to the framework that listeners are going to be able to take away and actually put to use in their life right now. But I wanna set a little bit more of the background first. So you have to have a system for keeping track of your ideas and capturing them so you don't lose them. Now, the next step is, and this came directly from my work at Trade Ideas, you soon have this big backlog of stuff to do.

Dave: 05:06

And once that gets overwhelming, then the problem is there's a lot less incentive to keep track of the fleeting thoughts and to bring those into the backlog. Because you get this sense of, okay, well, I'm never gonna get to all this stuff, so I may as well not even add anymore. It's just going to make things worse. The answer is keep track of everything, but you have to have a way to prioritize the things in the backlog. That is so important to be able to do.

Dave: 05:42

And so what we're going to talk about now is the framework for prioritizing. How do you prioritize? And what are the nuts and the bolts of it? And it can't be too complicated a system, otherwise you won't follow it. So it has to be simple enough to a framework to assign scores based some priority.

Dave: 06:06

And then the backlog becomes a lot easier to deal with because you're looking at a sorted list of stuff you should work on.

Michael: 06:16

Yeah. And we live in a world today where it's so easy to record ideas, which I think is hugely beneficial, that you end up forgetting less of them. Like, you know, just looking here, I've got this Apple Watch, and at any moment I can say, hey, you know, I'm walking the dog and say, remind me when I get back to my home about this, and it knows where my home is and it sounds. So it's so easy to have the ideas and then to record them that I think we end up getting even more ideas than we would have in the past because, we don't, by definition, won't remember all the ones that you forgot about. So when they're logged, kind of the first thing I think that it always makes sense to do is first of all, have a system to log those, whether it's just a reminders app or a dump in or something to catch those quick moments on the fly.

Michael: 07:05

And then when you have time to sit down in front of your computer, then you wanna take, you know, five minutes shouldn't take any more than that, just sit there and say, okay, I need to put these priorities into some type of a bucket. And I know, right, what we use at trade ideas there, so I won't spoil that. But why don't you talk about kind of where this process initially came from? Like, where did the idea of how to rank these things, where do you get that from, and then and kind of why did you choose this particular system? Because one of those things I'm sure there's hundreds of of different ways that that this could be done.

Dave: 07:43

Yeah. So a guy that was working for me, Chris, to me with this idea. It's a pretty common framework for prioritizing stuff. And it's called the ICE method, and that's an acronym, ICE. And it's a pretty simple sort of algorithm for assigning a score to items in your backlog, things you want to do.

Dave: 08:11

And the acronym is ICE. I stands for impact. C stands for confidence. E stands for effort. So let's start with impact.

Dave: 08:30

Obviously, impact for traders is going to be P and L. How much is this going to contribute to P and L? The other factor for the And or the two other factors are confidence and effort. So imagine you have two things you could do, maybe two different strategies that you could work on that you and you think they're gonna have an equal impact to your P and L if you do them. So what are the other two factors to consider?

Dave: 09:06

One is effort. How much effort are each of those gonna take? One that's easier, you should work on first. The one that's harder, then that doesn't make sense. You should work on the easier stuff first.

Dave: 09:19

Now, confidence. Confidence is a really important part of this framework because there's some strategies, ideas, things to work on that you think might have a huge impact, but you're not sure. There may be varying levels of confidence in the impact it would have or the effort it's gonna take. So that's why confidence is equally weighted among all these factors. So the way you compute the score is you have a scale from one to 10 for each of these factors.

Dave: 09:57

So impact, if you know something's gonna have a huge impact on your P and L, that would be a 10. If you have something that's a minor impact, that would be one. Confidence, same thing. If you're very confident, you assign it a 10. If you're not as confident, you assign it a one.

Dave: 10:18

Effort. So this is sort of the inverse of effort. If it's gonna be really easy, that's a 10. If it's gonna be really hard, that's a one. So the score comes from just simply multiplying these factors together.

Dave: 10:34

So what you end up with is the stuff with a really high score is stuff that's going to have a big impact. It's going to require a little effort, not very much, and you're very confident of those two things. Those are going be at the top of your list. And that's what you should be working on first. It's obvious once you start thinking about it.

Dave: 10:57

But this framework really distills it down to one column. You can get all these in Excel sorted by that column, then you have the stuff you should be working on first based on this criteria and framework.

Michael: 11:11

Yeah, and that was going to be my point is what I like about it is how there's so many project management softwares and all of that, and that's fine for companies, but for individual people, you want something that's super simple. And I'm glad you brought up Excel because that's my immediate thought is that, right, you take your task list that you've figured out when you walk the dog, you dump it into a spreadsheet along with everything else, and you just type in a couple numbers, and it will just pop up with this is what you should do next. And like most things, the whole point of it is that you're trying to systematize it, right? You're trying to take as much of the thinking kind of offhand. Now, you know, I know there's gonna be a huge amount of art to it, but I guess the unknowns, the things that you need to deal with, are things like the impact.

Michael: 12:01

Like, how do you, you know, I know you're ranking by confidence, but I could see a world in which I'm very confident that strategy is going to do a big impact to my P and L and it doesn't. And it's small amount. So I guess the nitty gritty would be kind of tips and tricks on how to very kind of fine tune and estimate that the best you can to make sure that you're, you know, you're not leading yourself astray. And Yeah. Also a bit of personal honesty, I think, would be important there too, because I I could see myself, like, I'm, like, really excited about something, so I'd choose the numbers just a little bit.

Dave: 12:37

Yeah. So think about this in a setting of a software development firm, which is where I've implemented this. A lot of times you'll have a CEO that his way or the highway, he's always got the the latest thing is always the highest priority. So if you have everything that's the highest priority, then nothing has the priority, right? And a lot of times you'll get sort of pet projects for people in power in a company that you can tell, okay, well, this is their pet project.

Dave: 13:13

It's not really gonna matter that much, but they really love So that's what we're gonna be doing. So it really has a good impact in a software organization because everybody all of a sudden has confidence that this framework is in place. It's not biased to have any specific person who's currying favor with somebody in power to get their pet project prioritized. That has a big impact on the morale of a software organization. But to do that, you have to have consistency.

Dave: 13:50

So just like what you're saying, you have to apply this with consistency and honesty just within yourself, even if you're the grand master of your organization, if you're the only one doing it. But you do get better at getting the scoring dialed in over time. And just think about the power of how this could impact the way you work. Mean, because all of a sudden, rather than looking at this backlog where everything's flat, like everything is the same priority, so really nothing has a priority, that's completely overwhelming. Like, what do you work on next?

Dave: 14:33

You have no real way of knowing. But then now you have, as soon as something goes in your backlog, give it a score. So all of a sudden it's ranked according to everything within everything else in your to do list. So then there's no disincentive to add new things to the backlog. Why not?

Dave: 14:54

You may as well add everything, all your ideas to the backlog. As long as they're being scored in the right way, know you're always going to be working on the right thing. So when you get time, look at your Excel sheet and what's bubbled up to the top, and that's what you should be working on first.

Michael: 15:10

That solves a couple of the problems, and the biggest one just being it solves the whole I don't know what to do, therefore I'm not gonna do anything, which is, I think, is a really common kind of procrastination thing where it's like, okay, well, I don't know what to do, so I'm just gonna You know, you get frustrated trying to figure that out. And then it also solves sometimes, I think, I was just like thinking about the system, I could see maybe going out of order of the main idea because maybe I'm just looking at it, and I actually wrote down, that's why if you guys looked down, because I wrote down, I thought it was cool. I could see a time where, especially in my life, like, okay, I've got two kids, maybe I've only got an hour or two to work on something, and it's not enough time to maybe go at the highest impact thing. But maybe I see something there that's got a really low effort score. It's got like a one.

Michael: 16:03

It's going to take me like thirty minutes to do. There could be a time and there could be that kind of flexibility where you're not feeling it that day, you just don't have the time, whatever it is, and you just go after those low impact, you're like, Let me just get a couple of those out of the thing. And the fact that you have each of these broken out in a way, you could kind of tailor the time you have to what it is that you wanna do. If you've got a big long session of uninterrupted, you go after the highest score in general, but then, yeah, it's like, hey, you know, the baby's sleeping. I don't know how long the baby's gonna sleep for.

Michael: 16:38

Let sort it by effort and just grab the lowest one there and and just get something done as opposed to getting nothing at all.

Dave: 16:45

Yeah. And, you know, it may seem overwhelming to go and implement the scoring across all your to dos right away before you do anything. But really, you don't need to do that to benefit from using this. Because a lot of times, maybe you don't have a huge backlog or maybe sort of what the four or five important things you should be working on are just to be able to, in your head, do go through this ranking to figure out what of the five things, what I should be working on right now, that's gonna help you a bunch. That rubric and going through the thought process that you just described, where you have just a little bit of time, let's look at the low effort stuff first that I know I can knock out and gain momentum using that.

Dave: 17:40

It's a good feeling. And it's not a lot of effort to be able to get something like that in place really quickly.

Michael: 17:49

Well, and, you know, to kind of piggyback off that is that, you know, just the way you're feeling sometimes. Like, like the you word use the word momentum. Sometimes you're super stuck you just got to get something done, right? Yeah. You gotta just, you know, sometimes the best thing you just, you sweep the floor, you just do something that's like, okay, I've done a positive thing.

Michael: 18:10

And it's especially, you know, in the emotions of trading, you're in a drawdown or something like that, you're just feeling kind of crummy and you want to get to work with it. But a follow-up question I kind of had for you was that, okay, do you, because as a human, you have a finite amount of time, but we're specifically talking trading stuff, I'm almost thinking of using something like this in like, I have a reminders app and it's my, I just call it my three things. So three things to do each day is usually one for, you know, something around the house and then one thing for personal health stuff, and then one thing for my business. And this was outside of the trading kind of thing. I'm wondering if ranking kind of everything inside of the, you know, combining business and trading and all of that, if that makes sense or if you should keep them separate.

Michael: 19:00

Because in one note, I'm kind of looking at this as well, you have finite time, you should almost be ranking everything in your life that, you know, makes the most sense. But then, you know, I think things get kind of muddy because, lifting weights might end up being low impact, but something that you low impact and high effort, but you got do it anyway.

Dave: 19:20

Yeah. I think it's important to keep those things separate because think about defining impact of a new idea for trading strategy versus your physical fitness in the weight room. That's a bit apples and oranges. You can't really compare that. So I think it's good to keep those things separate.

Dave: 19:44

And I think this is different than like a to do app, because I think this is more strategically thinking. I think this is more bigger picture strategy type thinking rather than stuff that's in your to do list. Like, what do I need to get from the grocery store today? It's a little bit different and maybe we can go into that. So for traders though, I think maybe we should talk about how to come up with the impact for traders because I've worked with a lot of traders that have implemented this method after I've suggested it to them and they do find it really helpful.

Dave: 20:25

The problems they have is consistency. They find themselves with their own little pet projects that they wanna do, so having a consistent way to rank things. But let's talk about the impact. So here's an example from my life this morning. So I had this, I would call it a tedious project that I had to do.

Dave: 20:54

And it's sort of unclear whether this was gonna have I think it's gonna ultimately result in some P and L, but it's like three or four steps down the line. But getting this done all of a sudden makes a lot of other things a lot smoother. Compare that to something where like creating a new trading strategy that I know will have some P and L, you have to come up with some way to rank the impact for that and be honest about that. So there are these projects that don't have a direct impact on P and L, but in the long term or foundationally, can have an impact on lots of different strategies that you're already though they're removed, they could have a big impact and you should be categorizing them in a way that has a lot of impact.

Michael: 21:57

Interesting. Cause I'm thinking of it more kind of technical from like a buying power point of view, right? You know, so if I'm looking at a bunch of different systems, I'm just splitting it out purely mechanically and saying, okay, have free buying power here, I should utilize this kind of system here. Are you talking about when that's completed, or would that kind of be step one? Like when you're eventually you get to the point where you've got competing ideas for the same buying power.

Michael: 22:28

I'm looking at that as like the resource pool and then trying to figure out kind of from that which one I should be focusing on.

Dave: 22:35

Yeah. Well, you need to think about what's your ultimate thing you're optimizing for. And it's probably profit, right? You're not optimizing for minimizing your buying power or you're using as a little optimizing for profit. So if you need to consider your buying power constraints to get to that profit, then maybe that's what it is.

Dave: 23:04

But the end goal itself is not to minimize your buying power or maximize your buying power. It's to ultimately P and L, like money in your account.

Michael: 23:14

Yeah, but kind of what I was thinking there is that if I'm going through, so this is why I think this impact thing would be so personal. If you're someone who has one strategy that trades like the first fifteen minutes of the day and you're done, your high impact thing may be a strategy that trades the close or a strategy that, you know, trades or holds longer in the day or something like that. And then if you're already to the point where you have tons and tons of strategies and all working out real great, and you're kind of tapped in that area, your high impact thing might be automating some journaling aspects or something like this. So it just shows that at the end of the day, these things become just hugely personal based off kind of where you are in this individual journey and your goals. So, you know, it's something that is definitely, you're gonna have to kind of sit with yourself for a period of time and really think about them for some amount of time, because yeah, something that might be high impact to me wouldn't be anything that anyone else would really care about at all.

Dave: 24:20

Yeah. So let's talk further into ways that you can use impact based on some certain concrete examples. So let's say you have an existing strategy and it's working well, but you know you can improve it in some way. So maybe that's some to do item, improve this specific strategy. And you're comparing that to another strategy that you haven't implemented yet.

Dave: 24:50

So maybe you haven't, like you're just starting from scratch with that one. So which one do you think would have more impact? Now, I would argue, and the way I think about it is once you already have something that's proven, it's sort of a known quantity, that should have a higher impact. Working on that should have an higher impact than a completely new strategy because the new strategy, your confidence score is not going to be as high, right? Because you don't know, like there's some conjecture there.

Dave: 25:28

It's not far enough along in the process to have real confidence in. So in that sense, if you're weighing those two things, work on the existing strategy probably, or consider that when coming up with the impact score. Another good one is when you compare strategies, think about how frequently they trade. If something you think is going to have a really high win rate and be profitable, but it only trades once a month or so, Comparing that to something that trades five to 10 times a day, but maybe even has a lower win rate. You should focus on the one that is happening more frequently.

Dave: 26:17

And you get a lot, it's easy to, especially as, think a lot of engineers are listening to this, people with an engineering mindset, a lot of traders have that mindset. It's very easy to get caught in, fall in love with a strategy or project that doesn't really have that much impact, but it's interesting to work on or it's like some fun technical challenge. But if it's not going to have a lot of impact, then you should think about that before you go down this rabbit hole of solving this fun problem when it's not really going to have that big of an impact on your P and L.

Michael: 27:00

Well, yeah. And that comes a lot with the the honesty of right? Are are you super excited about this because, you know, it it looks fun to do and and all of that kind of stuff and you think it'll be fairly easy and and whatever? Or are you honestly looking in to do this because it's going to make you the most amount of money possible, which is really, at the end of the day, the kind of end goal. So that's interesting because, you know, the way you looked at it is refining the current strategy versus testing the new strategy.

Michael: 27:33

I guess that goes back and we won't rehash the argument we had a couple episodes ago about the multiple strategy kind of portfolio. So I'll kindly disagree with you there, but for the the sake of brevity, we can just if you haven't seen our latest argument, just go back to the whole multiple strategy side of things. But, yeah, at the end of the day, I think it it is one of those we can give, you know, slight amount of guidance and things like this to hopefully help people out. But at the end of the day, have to sit down, you have to try to figure some of these out for yourself because depending on where you are, that impact thing is gonna be everything. And it looks like that's kind of the tip of the spear.

Michael: 28:16

That's the thing that's the most important because if, you know, you have all the confidence in the world, it's gonna have very little impact, but it's only gonna take you five seconds to do, it still doesn't really matter. So if you're waiting one of those things for the ultimate side of things, it's waiting the thing that is, you know, you're very, very confident is gonna make a huge impact. So it's a really cool system. And I think I'm gonna build a little spreadsheet when we're done talking here and try to utilize that just to systematize it a little bit more. But I like that it's intuitive because in your brain, you're probably already doing something similar as well.

Michael: 28:56

You just haven't really kind of sat down and quantified it just yet.

Dave: 29:01

Yeah. I agree. That's a huge advantage of this is the simplicity and also the ease of understanding the score. It's very easy to understand the components of it. It's not that hard to put it together.

Dave: 29:20

So it becomes a manageable task to categorize and prioritize your list of stuff to do in the first place. So yeah, in that sense, great. It's so easy for Like I said, for engineers, it's very easy for us to overcomplicate things. And I like this rubric because it's simple. Anybody can do it in Excel.

Dave: 29:50

It takes what, four columns to add and anybody can do it. Michael, why don't you put together a spreadsheet? Why don't we do this? We'll put together a spreadsheet, put it in the show notes and we'll share it as a Google Sheet. Yeah.

Dave: 30:07

So people can use it and see the framework. We could put a few sample items in there and assign the score so it becomes concrete for people.

Michael: 30:16

No, I like that. Yeah, we can do some cool. I'm not a I'm not a programmer like Dave, but I I spent my life in Excel spreadsheet, so I could do some cool stuff there. We'll do it. Yeah.

Michael: 30:26

Google Google Drive link. And I'll be interested to see, you know, we always like to read the comments and and all of that. If you guys have other methods or something to add to this particular method or something like that, I'll be super interested to hear because I like this one because of its simplicity, but I could see a world where there's 10,000 different ways to to skin this proverbial cat, and then and a lot of them would probably make sense in the in the same way.

Dave: 30:53

Yeah. So there's so there's one final caveat here. So and you alluded to it earlier when you talked about fun. Now, it is important to have fun in the work you do and your trading, I think. I believe that pretty strongly.

Dave: 31:12

So there is a little bit of If you have a tie in the scoring for two different things, you should focus on the one that seems more fun to you. You should have fun doing this work. Trading is fun and working on trading is super fun. That's an important thing to keep in mind and that should definitely be the tiebreaker in any sort of the work you're doing.

Michael: 31:40

Yeah, don't be too robotic, right? Be robotic enough, but yeah, make sure you leave a little bit of humanity in there if there's something that's really kind of striking a nerve with you, because who knows, maybe it will be, it will turn out to be higher in one of those scores than you thought. Because I was actually looking at effort and I was saying, okay, well, you know, you could divine effort as hours put in, but it's if you're really, really enjoying it, does that actually shave a little bit off the effort score? You know, I know that doing the dishes is fairly low effort, but it makes me a lot to go. I have to push myself harder to go do it than something I would enjoy even if that thing I would enjoy would technically be be much higher effort.

Michael: 32:29

Right? So there's a little bit of little bit of humanity you gotta put in that into that one.

Dave: 32:33

Yeah. I could say I could say that I could see the fun going into the effort score. Like Yeah. Even if Yeah. Perceived Perceived effort.

Dave: 32:45

Effort or or, you know, something that's really fun but hard may win out versus something that's even a even a little bit less hard but not as fun.

Michael: 32:58

That's awesome. So yeah. And, you know, get into the show notes there or the YouTube description or wherever you're reading this into to get that spreadsheet. So now that I'm saying it out loud, I actually have to go actually have to go do it, which is good. It forced me to force me to do it.

Michael: 33:14

Yeah. Really, really cool. I I think this one will help a lot of people. And as always, I'm Michael Noss.

Dave: 33:21

I'm Dave Mapes. We'll talk to you next week on Line Your Own Pockets.