The question of an edge - Traders Hideout | futures io social day trading
futures io futures trading


The question of an edge
Updated: Views / Replies:12,494 / 40
Created: by Grantx Attachments:2

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 100,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 2  
 
Thread Tools Search this Thread
 

The question of an edge

  #31 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Trading Experience: Advanced
Platform: Tradestation
Broker/Data: Tradestation, DeCarley, others
Favorite Futures: futures
 
Posts: 2,620 since Jul 2012
Thanks: 1,355 given, 4,999 received


Grantx View Post
@kevinkdog

I see now the importance of expectancy however as a day trader I just cannot accept that expectancy is at the top of my hierarchy of needs.

Here's my point: regardless of your style of trading, if you don't have a way(s) of entry and exit that over the long haul produces profit, nothing else matters - you will lose.

Too many people think journaling, or money management, or psychology, etc. is the key to making them profitable. Not true!

Think of it like roulette. Many people invent money management schemes, record past data, journal their thoughts on how to win, etc. And you know what? They still all lose in the long run. Why? Because they are playing a negative expectancy game - the odds are not in their favor.

That is why I put expectancy at the top of the list. If your trading method - whatever it is - does not have a long term positive expectancy, then all those other things do not matter. Having all those other things may help you lose money more slowly, but you will still lose money in the long run.

The ironic (and confusing) part of this is that even if you do have a long term positive expectancy method, bad/lack of money management, psychology, etc can still make you a loser. It is like this:

Negative expectancy trading method, Poor psychology, money management, discipline : You LOSE
Negative expectancy trading method, Excellent psychology, money management, discipline : You LOSE
Positive expectancy trading method, Poor psychology, money management, discipline : You LOSE
Positive expectancy trading method, Excellent psychology, money management, discipline : You WIN


I hope this clarifies it.


By the way, the expectancy description was good, but way too complicated.

Simple:

Expectancy = Average Trade


(Van Tharp also has an expectancy I call "Tharp Expectancy" = avg trade/avg losing trade)

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
Follow me on Twitter Reply With Quote
The following 9 users say Thank You to kevinkdog for this post:
 
  #32 (permalink)
Market Wizard
Birmingham UK
 
Trading Experience: Intermediate
Platform: NinjaTrader
Broker/Data: TST/Rithmic
Favorite Futures: YM/Gold
 
ratfink's Avatar
 
Posts: 3,650 since Dec 2012
Thanks: 17,356 given, 8,340 received


kevinkdog View Post
Negative expectancy trading method, Poor psychology, money management, discipline : You LOSE
Negative expectancy trading method, Excellent psychology, money management, discipline : You LOSE
Positive expectancy trading method, Poor psychology, money management, discipline : You LOSE
Positive expectancy trading method, Excellent psychology, money management, discipline : You WIN

We all most definitely agree on the two components.

The only difference is that system/professional guys start the sentence with expectancy, and assume that psychology is a given, otherwise they would be in a different job; whereas any of us mere retail traders that have a decent amount of experience start the sentence with psychology, knowing that if we don't crack that we aren't going to find any expectancy anyway.

Anybody else starting out has to discover the hard way that both worlds are inhospitable places to live in.

Cheers

Travel Well
Visit my futures io Trade Journal Reply With Quote
The following 9 users say Thank You to ratfink for this post:
 
  #33 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Trading Experience: Advanced
Platform: Tradestation
Broker/Data: Tradestation, DeCarley, others
Favorite Futures: futures
 
Posts: 2,620 since Jul 2012
Thanks: 1,355 given, 4,999 received



ratfink View Post
We all most definitely agree on the two components.

The only difference is that system/professional guys start the sentence with expectancy, and assume that psychology is a given, otherwise they would be in a different job; whereas any of us mere retail traders that have a decent amount of experience start the sentence with psychology, knowing that if we don't crack that we aren't going to find any expectancy anyway.

Anybody else starting out has to discover the hard way that both worlds are inhospitable places to live in.

Cheers

I definitely agree that both are needed to succeed!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
Follow me on Twitter Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
  #34 (permalink)
Market Wizard
Boca Raton
 
Trading Experience: Advanced
Platform: Variety
Broker/Data: Optimus Futures, LLC
Favorite Futures: Futures
 
mattz's Avatar
 
Posts: 2,381 since Sep 2010
Thanks: 2,318 given, 3,457 received


tpredictor View Post
And, it should be noted that for many capital itself is an edge. Capital to deploy different types of strategies and even capital to trade in the first place. In fact, if we accept that capital is required to trade, we can logically see that no trader has ever made money exclusively from trading. A trader might say, for example, he doubled his 5k account. But where did the original 5k come from? Because capital is required to trade, we can see that at least a significant edge for all traders must have been acquiring some capital to start with. Basically, no one has ever made anything from trading ability alone: capital was required.


I don't think you can consider capital in itself an edge, however, how you acquired your capital may potentially give you a solid foundation to be a trader. If you had a successful business, career, etc. You may have acquired skills that may help you in trading. Any success requires a certain level of struggle, persistence, setbacks, problem-solving skills, etc. Those who bring it to the trading world could potentially handle setbacks better, and every trader will face setbacks.

Thanks,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
Reply With Quote
The following 2 users say Thank You to mattz for this post:
 
  #35 (permalink)
Market Wizard
Wiltshire, United Kingdom
 
Trading Experience: Beginner
Platform: Jigsaw daytradr
Favorite Futures: US Equity Index Futures
 
matthew28's Avatar
 
Posts: 694 since Sep 2013
Thanks: 1,354 given, 1,156 received


kevinkdog View Post
Negative expectancy trading method, Excellent psychology, money management, discipline : You LOSE

By the way, the expectancy description was good, but way too complicated.

Simple:

Expectancy = Average Trade

I put the cart before the horse spending a lot of time reading books on trading psychology and a couple of home study courses. Very interesting and I don't regret any of it as I feel it has been very beneficial for me as a person. But I feel it is similar to performance coaching for a sportsman which is done to enhance results and is best worked on after the basic techniques and abilities have become almost subconcious. I spent too much time on 'increasing performance' with out having the foundation of a valid trading methodology to build upon.

And I agree about expectancy. After looking at expectancy formulas that all seemed to differ from Van Tharp's in varying degrees of complexity I also just use the average trade. If after 100 contracts/Round Turns traded I have made $1,000 I see my expectancy as $10/Round Turn.


Last edited by matthew28; July 17th, 2017 at 03:36 AM. Reason: clarity
Visit my futures io Trade Journal Reply With Quote
The following user says Thank You to matthew28 for this post:
 
  #36 (permalink)
Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,961 since Dec 2013
Thanks: 2,403 given, 5,296 received


ratfink View Post
The only difference is that system/professional guys start the sentence with expectancy, and assume that psychology is a given, otherwise they would be in a different job; whereas any of us mere retail traders that have a decent amount of experience start the sentence with psychology, knowing that if we don't crack that we aren't going to find any expectancy anyway.

Well said

Reply With Quote
The following user says Thank You to SMCJB for this post:
 
  #37 (permalink)
North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

Let me summarize why I think might be why there are different views of expectancy. If you trade a system, trades are generated based on a consistent set of rules and taken in a consistent way. As such, expectancy is used both as as the predictive statistic (an extrapolation of what the future will look like) and as a descriptive statistic of the past (what actually happened).

However, attempting to trade like a system for a discretionary trader would be both nearly impossible and also nonsensical because to do that you would need to generate your fixed set of rules and then you would need to trade them in exactly the same way with no variance. If you were to do both of those activities though, you are now just trading a system and there is no longer any discretionary component. As such, expectancy takes on a different meaning for the discretionary trader. The rules are no longer fixed: so it is not a validation of the rules but rather of the cognition of the trader. As many more factors can effect cognition, those other factors can become more relevant. However, market cognition is still probably a better place to invest your energies then in general psychology.

Mathematically, it is known that models with more variables are more likely to capture complex phenomena like markets exhibit. However, introducing more variables, into traditional systems most often results in two problems (1) inability to understand the model and (2) over-fitting. We know that the discretionary trader's model should be more complex. As such, if the discretionary trader sees a verifiable truth in markets (such as markets trend or markets trade in a range) then they assume that they are trading closer to reality. A method closer to reality is more likely to be robust. It is more likely to capture the truth of the markets. The cost for trading a more realistic method though, a more robust method, is that it becomes more difficult to bound the strategy at the extents. This translates into not knowing how much to bet and not having as much clarity into the model. Simplifying the model to produce a consistent set of rules, will produce a characterization of reality but the benefit is that we know exactly how the model behaved in the past. We can now gain insight into how the strategy is working and, at least, we can figure out under given scenarios the historical risks of betting varying amounts. Unfortunately, the cost is that because the model has been simplified, the model may not work as well going forward and while we know our historical estimates of risk: they could be wrong. Ironically, most discretionary traders focus on consistency but rationally we should expect both greater variance in discretionary trading and enhanced robustness. On the other hand, we should expect trading systems to exhibit greater consistency but higher rates of failure.

Reply With Quote
 
  #38 (permalink)
Geelong Victoria
 
 
Posts: 113 since Jan 2015
Thanks: 45 given, 90 received


tpredictor View Post
Let me summarize why I think might be why there are different views of expectancy. If you trade a system, trades are generated based on a consistent set of rules and taken in a consistent way. As such, expectancy is used both as as the predictive statistic (an extrapolation of what the future will look like) and as a descriptive statistic of the past (what actually happened).

However, attempting to trade like a system for a discretionary trader would be both nearly impossible and also nonsensical because to do that you would need to generate your fixed set of rules and then you would need to trade them in exactly the same way with no variance. If you were to do both of those activities though, you are now just trading a system and there is no longer any discretionary component. As such, expectancy takes on a different meaning for the discretionary trader. The rules are no longer fixed: so it is not a validation of the rules but rather of the cognition of the trader. As many more factors can effect cognition, those other factors can become more relevant. However, market cognition is still probably a better place to invest your energies then in general psychology.

Mathematically, it is known that models with more variables are more likely to capture complex phenomena like markets exhibit. However, introducing more variables, into traditional systems most often results in two problems (1) inability to understand the model and (2) over-fitting. We know that the discretionary trader's model should be more complex. As such, if the discretionary trader sees a verifiable truth in markets (such as markets trend or markets trade in a range) then they assume that they are trading closer to reality. A method closer to reality is more likely to be robust. It is more likely to capture the truth of the markets. The cost for trading a more realistic method though, a more robust method, is that it becomes more difficult to bound the strategy at the extents. This translates into not knowing how much to bet and not having as much clarity into the model. Simplifying the model to produce a consistent set of rules, will produce a characterization of reality but the benefit is that we know exactly how the model behaved in the past. We can now gain insight into how the strategy is working and, at least, we can figure out under given scenarios the historical risks of betting varying amounts. Unfortunately, the cost is that because the model has been simplified, the model may not work as well going forward and while we know our historical estimates of risk: they could be wrong. Ironically, most discretionary traders focus on consistency but rationally we should expect both greater variance in discretionary trading and enhanced robustness. On the other hand, we should expect trading systems to exhibit greater consistency but higher rates of failure.


Another excellent post defining trading reality, clearly you have been to the mountain.

The nature of markets regularly change sometimes in minutes, but definately in hours and days, requiring constant adaption. Rigid systems are almost impossible to capture these constant changes effectively.

All that is required is to accurately define the nature of the market at any given moment and to be positioned in that direction. Pretty simple really.

I think in ranges to enter and changes in market bias to exit or reverse. I don't try to force my will onto the market with fixed stops, profit targets ect, I will just get run over. How much of my working capital do I risk, this depends on what I am seeing unfolding and sometimes just how confident I am feeling on the day, yes we all fluctuate, we are human not machines, why try to be what we are not, focus on being good at what you are. I view working capital as a float that I am prepared to lose in a worst case scenario (10-20% of my account) , that way I am not trading scared, it is already gone and is a bonus when I keep it, which is most of the time.

Trading is an art form not a science, to me systems trading is the equivalent of finger painting.

I have been in the game a long time, the only people that I know personally who have consistently made a living from trading generally have quite similar views. I don't personally know any Chartists/Technitians that have succeeded long term, perhaps there are some, but generally it seems to be the domain of the learner mug punter, don't worry we have all been there at one time or another, there is hope. Adapt or fail!

Don't be baffled by the b-llsh-t, get the basics right and the rest will follow.

Good Hunting.

Cheers John

Reply With Quote
The following 2 users say Thank You to Johno1 for this post:
 
  #39 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Trading Experience: Advanced
Platform: Tradestation
Broker/Data: Tradestation, DeCarley, others
Favorite Futures: futures
 
Posts: 2,620 since Jul 2012
Thanks: 1,355 given, 4,999 received


Johno1 View Post

Trading is an art form not a science, to me systems trading is the equivalent of finger painting.

I have been in the game a long time, the only people that I know personally who have consistently made a living from trading generally have quite similar views.

Different (paint) strokes for different folks, I suppose.

I have the exact opposite experience - I know quite a few successful "finger painting" traders, but zero long term successful discretionary traders (I'm not saying they don't exist though, and I'd never put down what the successful ones do)...

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
Follow me on Twitter Reply With Quote
The following 5 users say Thank You to kevinkdog for this post:
 
  #40 (permalink)
Legendary Guesser
Reading UK
 
Trading Experience: None
Platform: Prorealtime
Broker/Data: Interactive Brokers
Favorite Futures: My 3 boys
 
Grantx's Avatar
 
Posts: 1,578 since Oct 2016
Thanks: 2,176 given, 4,081 received



kevinkdog View Post

Expectancy = Average Trade


(Van Tharp also has an expectancy I call "Tharp Expectancy" = avg trade/avg losing trade)

Would you mind explaining the best way of calculating expectancy? avg trade/avg losing trade doesnt factor in how much was risked per trade and according to The Van Tharpe website this needs to be part of the calculation.

Van Tharpe expectancy

TIA.

Visit my futures io Trade Journal Reply With Quote

Reply



futures io > > > The question of an edge

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)
 

futures io is celebrating 10-years w/ over $18,000 in prizes!

Right now
 

$1,000 in Amazon Gift Cards being given away right now from GFF Brokers

Right now
 

$250 Amazon Gift Cards with our "Thanks Contest" challenge!

Right now
 

Show us your trading desks and win over $5,000 in prizes w/Jigsaw Trading

August
 

Webinar: Suri Duddella (TBA)

Elite only
 

Webinar: Richard Bailey (TBA)

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Edge steve2222 Terms (Glossary) 0 July 28th, 2016 03:15 AM
trading from the edge or not forgiven The Elite Circle 1 May 22nd, 2016 04:38 PM
RSI Edge? gever17 NinjaTrader 5 March 23rd, 2011 05:48 PM
Finding your edge! George Psychology and Money Management 2 September 22nd, 2010 06:49 PM
Trading with an edge - what does it mean to you ? trendisyourfriend Psychology and Money Management 22 September 14th, 2010 06:39 AM


All times are GMT -4. The time now is 05:05 AM. (this page content is cached, log in for real-time version)

Copyright © 2019 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts