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Trading with an edge - what does it mean to you ?


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Trading with an edge - what does it mean to you ?

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  #1 (permalink)
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Theoretically , having an edge should translate in winning more than losing.

We often hear that trading is 95% psychological and 5% technical. What do you think ? If that would be the case then how come is it so difficult to develop a *winning* mechanical system? After all, a computer is not influenced by emotions. If a computer can psychologically feel 100% up to snuff all of the time then why a cross over of two moving averages is not enough to win over the long term ?

Certainly, to win the game there is more than psychology, there must be other component we need to consider ? I have the feeling that these other components are more physical and technical than anything else. And we often hear that trading is mostly phychological... What a paradoxical theme!

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  #3 (permalink)
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To me, I define my edge primarily by things other than an entry signal. It seems that majority of people tend to define their edge as a signal, and here I am defining it by pretty much everything but.

My edge is based on:
  • Experience reading price action
  • Discipline
  • Outside influences / life stuff is beneficial not detrimental

Naturally there is more, but I think in general if you repeat the first two about 90 times you'll have the basis for what is needed to be successful. Sure, you need position sizing, money management, etc. Absolutely. And I also want to say that entries really don't mean much, yet everyone puts all their focus on entries. Exits are what matters But truly, I think that the experience to know when to trade, when not to trade, and then the discipline to be slow and steady, consistent, and not fly off the handle or go on tilt because of a bad trade or day, those are what determine your edge in the market.

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  #4 (permalink)
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After a few thousand hours of screen time, reading, live trade rooms and online forums I ve come to see the 'edge' as a simple enough concept. To prove an edge you need to be able to perform a statistically significant number of consequtive trades according to a defined methodology and have a significantly profitable result. Simple enough concept but harder to achieve. 'Trading with an edge' is only possible if:
  1. you have a solid and complete methodology.
  2. you have the technical expertise to implement it reliably
  3. you have faith in each setup
  4. you can objectively tell the difference between 'a mistake' and a 'valid losing trade' [ to avoid the trap of retrospectively classifying losers as mistakes]
  5. you have a sufficiently funded account so that you are able to place stops where the market ( and not your account) dictates.. And each trade risk is less than 3% of account ( preferably 1 to 2).
  6. you understand the probabilities of the method [so that you dont change methods everytime a drawdown occurs]
points 3 to 6 are all about being able to cope psycholgically with trading the method.

So my view is that it is interdependent and about 50/50 - you cant trade with an edge without the method and the technical abilty, nor can you trade with an edge without good money management and psychological mindset.

To tick the 6 boxes takes a lot of time - 10000 hours is a figure thrown around. I thought I could do it faster than that when I started out - still hopeful of that but been humbled a few times now so we'll see.

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  #5 (permalink)
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Hi,

I totally agree with the most what has written before.

For me my edge is based on:

1. Experience reading price action - you can't learn this in a few months

2. Experience reading orderflow/-book - useless without experience in reading price action

3. Experience in trade management - scale in/out, increasing position size whenever it's possible
(building big positions during a trade) = pyramiding

4. THE MOST IMPORTANT THING : Trading fearless!
This is the key to trade successfull. If you feel pain or rage when a stoploss event happens then you have
to decrease size or change the instrument that you trade until you feel nothing.
For me personally this was the hardest thing that I have learn. If you don't have this feeling of fear of loosing money trading becomes much easier. But it's not easy to get this confidence and it has much to do with experience.

You see all these things are based on experience and need a lot of time to learn. This is why so many people loosing day by day and exit this business very shortly. You can't buy experience.

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  #6 (permalink)
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I believe experience is the most important thing, it can cover all other factors, the only way we can buy experience is our money and time, but who can afford to buy, who will win at last.




Warren B. View Post
Hi,

I totally agree with the most what has written before.

For me my edge is based on:

1. Experience reading price action - you can't learn this in a few months

2. Experience reading orderflow/-book - useless without experience in reading price action

3. Experience in trade management - scale in/out, increasing position size whenever it's possible
(building big positions during a trade) = pyramiding

4. THE MOST IMPORTANT THING : Trading fearless!
This is the key to trade successfull. If you feel pain or rage when a stoploss event happens then you have
to decrease size or change the instrument that you trade until you feel nothing.
For me personally this was the hardest thing that I have learn. If you don't have this feeling of fear of loosing money trading becomes much easier. But it's not easy to get this confidence and it has much to do with experience.

You see all these things are based on experience and need a lot of time to learn. This is why so many people loosing day by day and exit this business very shortly. You can't buy experience.


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  #7 (permalink)
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Experience, experience, experience. When you'll have an edge, you'll know it. It is different for everyone. If I have to summarize it, I would say "know and maximize your strenghts, know and minimize your weaknesses".

And think on your own, don't take anything for granted, verify everything, all beliefs have to be personal and inner owned.

About mechanical systems, I believe they simply don't exist. Even a 100% mechanical system is discretionary, because someone has to discretionally build the rules, and discretionally decide when to trade the system and when not.

Regarding entries and exits, I believe they're equally important. I see trades in risk/reward terms, the entry define the risk, the exit define the reward, given the risk (sort of bayesian probability).

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jagui View Post
Experience, experience, experience. ... the entry define the risk, the exit define the reward, given the risk (sort of bayesian probability).

Lets not forget all the wondeful networks involved, neural and otherwise!!!

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Big Mike View Post
To me, I define my edge primarily by things other than an entry signal. It seems that majority of people tend to define their edge as a signal, and here I am defining it by pretty much everything but.

...And I also want to say that entries really don't mean much, yet everyone puts all their focus on entries. Exits are what matters But truly, I think that the experience to know when to trade, when not to trade, and then the discipline to be slow and steady, consistent, and not fly off the handle or go on tilt because of a bad trade or day, those are what determine your edge in the market.

Mike


Mike, a bit of contradiction in your statement, you wrote: "I define my edge primarily by things other than an entry signal" and then you add "But truly, I think that the experience to know when to trade, when not to trade..."

The "when to trade or not" as a lot to do with entry unless i missed something

If you enter at the worse possible place (ex. at the end of a move) then no matter how good your reading skill is or your money management or discipline the end result will be a definitive lost. So certainly your entry point has a lot to do with your overall score and you should determine your entry with circumspection.

To me, i only care about my entry as it's so closely related to my risk. I do not predict so i leave the reward out of the picture most of the time even though i may anticipate the final destination because of my experience. I can only estimate my reward at the end of the week as i have a track record, i could say this week i achieved a 3:1 risk/reward ratio but before any trade i never try to predict where price will end its move. In other words, i never think in terms of risk:reward but rather in terms of risk given the developing market structure of the current session.

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trendisyourfriend View Post
Mike, a bit of contradiction in your statement, you wrote: "I define my edge primarily by things other than an entry signal" and then you add "But truly, I think that the experience to know when to trade, when not to trade..."

The "when to trade or not" as a lot to do with entry unless i missed something

What I meant by when to trade/not to trade is basically to look for good risk/reward trades, not take every setup, and avoid chop.


Quoting 
If you enter at the worse possible place (ex. at the end of a move) then no matter how good your reading skill is or your money management or discipline the end result will be a definitive lost. So certainly your entry point has a lot to do with your overall score and you should determine your entry with circumspection.

So? Just because it's a loss doesn't really mean much. Unless you have somehow managed to pick the worst possible entry the majority of time. If you have a method you've researched and analyzed, the reverse should be true.

I think entry point has relatively little to do with it, it's all about your exit.


Quoting 
To me, i only care about my entry as it's so closely related to my risk. I do not predict so i leave the reward out of the picture most of the time even though i may anticipate the final destination because of my experience. I can only estimate my reward at the end of the week as i have a track record, i could say this week i achieved a 3:1 risk/reward ratio but before any trade i never try to predict where price will end its move. In other words, i never think in terms of risk:reward but rather in terms of risk given the developing market structure of the current session.

If you are entering trades without knowing the potential reward, ie -- you have no targets based on your market experience -- then you can't make sound decisions for measuring the risk/reward of the trade itself. How do you know if you should even be in the trade at all if you don't know if the risk/reward is good?

Mike

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