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Why do trading edges dissapear?
Started:August 29th, 2015 (06:53 PM) by Giorrgi Views / Replies:1,494 / 23
Last Reply:September 7th, 2015 (01:05 PM) Attachments:2

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Why do trading edges dissapear?

Old September 6th, 2015, 01:06 AM   #21 (permalink)
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whtfr View Post
Are you saying all indicators are lagging?

It's easy, just look at the formula used to create the indicator. For example, what is a moving average? It is the average of the last X number of data points. That tells you it is lagging because it tells you what happened in the past. The same is true for pretty much every single indicator. An indicator is not magic, it is simply a mathematical formula applied to a past series of data points. The keyword being past.

There are very few that are not lagging which are the likes of orderflow, breadth etc. That does not mean lagging indicators are useless. Just don't fool yourself into thinking that the market is respecting a moving average (or any other indicator) which is acting as support. Things like that are complete rubbish.

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Old September 7th, 2015, 12:42 PM   #22 (permalink)
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Giorrgi View Post
...what events tend to alter a trading edge?

Changing market metrics as previously stated herein.

And - trader conditioning. Any edge consists of a suite of tactics that encompass everything from the morning ritual to the afternoon bookkeeping tasks. Inside of that are various specific trading plans that we develop and test. The testing process is psychological. We're taking Ws and Ls in order to test the edge (back testing aside please). The plan (edge) becomes a concept that that has a chemical association with our brain. In saying this, I'm pulling from Denise Shull's idea that each trade is either a trauma or euphoria inducing event. That sounds useful to me for the task of self-monitoring. It also fits with my experience. I started with a basic edge and experienced a positive equity curve for several months. Then, the curve rolled over into a nose dive. Just like a stunt pilot at the county fair. So I scrutinized my edge and found that it was sufficiently adaptable to changing market metrics. My logs showed that the what-if scenario indicated my edge remained viable, but that my behaviour had changed. I believe I was conditioned by exposure to trauma and euphoria and my personality defects were triggered into action. Today, I still use the same basic plans that i did then. In the service of maintaining the plans, they get technically tweaked, but most of the effort goes into behaviour mod.

In support of my case for this linkage (specific emotional development linked to a plan), consider two different plans: Both plans exhibit profitable results but their W/L ratios are at opposite positions. The one that requires a trader to take a lot of Ls should require a different emotional maintenance tactic than what was required for the other one.

Furthermore, to be an agile trader in an environment of changing metrics, the trader should endeavor to work his least favorite plans. When market metrics change, we all immediately recall our experiences associated with that particular environment. It's time to change plans, but how easy is that? One might think, "I have to deploy a plan that I don't like. I'm not happy about it, but I can make some coin (or avoid losing it). I have to start right now... nah, I think this environment is short lived, so I'll be the first on board with my favorite plan." I've done that a lot. When it occurs, I cease to be a technical trader and all my edges lose their mojo.

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Old September 7th, 2015, 01:01 PM   #23 (permalink)
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The perceived 'edge' disappears because it never was.

(edit: Not including high-frequency market making firms like Citadel, Renaissance, etc... They do have an edge).

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Old September 7th, 2015, 01:05 PM   #24 (permalink)
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The fact if trading edges do disappear or not, is based on what is the 'so called' trading edge based on.

If the trading edge is biased toward a certain type of market, and that market changes, then that edge does not disappear, but at a given time the market needs to be handled differently.

Unless you are trying to exploit very specific things, if you stick to basic understanding of the market, i don't believe an edge is going away, if it is built on understanding the market and how money flows in general. With that i don't mean a little tiny 5 minute window, that can be manipulated, but a bigger time frame, and with correlation with other instruments.

Once money starts to flow from A to B on the big picture, that flow does not simply stop and reverse, like a chart on a too small time-frame does.

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