Edited by NAV, 25 April 2018 - 01:39 AM.
Posted 25 April 2018 - 01:33 AM
Edited by NAV, 25 April 2018 - 01:39 AM.
Posted 25 April 2018 - 09:14 AM
As someone who does a lot of high probability very short term trading, I take big exception to your very first example.
Who in the hell in their right mind would design a system where your one loss is twice as large as your expected gain per trade?
For example say I am trading 1 or 5 min chart on YM. My methods are designed to allow for 5-10 point loss, while looking for 25-100 point again. This is very variable depending on the size of the air gaps in the charts.
An even when I go hourly, I start with the 1 min look, so my initial stop is still very tight while looking for perhaps hundreds of points of gain.
Another thing I do a lot, on the longer swing trades is to scalp in and out based on the shorter time frames, and thereby increase my initial entry point on a short, or decrease the overall starting point on a long.
So many times when a longer swing trade doesn't work out, the short term scalps lock me in at a profit, even when my original stop gets taken out.
The key as you rightly point out is ruthless money management, and accepting the fact some whipsaws are inevitable. The very worst thing you can do is let a loss run when you have identified a clear stop level.
My big money comes under basically 2 scenarios:
1. When air gaps are large, and therefore volatility is usually a lot higher, and the money comes a lot faster. (like now...last couple months have been insanely profitable)
2. When multiple time frames compress, thus increasing the chances of a breakout type move. The way to play these is to let them ride a bit longer, knowing that sometimes they do the breakout/fakeout thing, and you give back an initial big gain. But that usually leads to a good move in the opposite direction, so stop and reverse often times work out really well.
The rest of the time, I am pretty much in scalp mode trading inside the various time frames "alligator jaws". And if you are content to rack up 1/2 to 1% gains over and over, even in that kind of environment, you can rack up sizeable gains over time, while the market essentially goes nowhere.
So to me, the biggest key is to identify WHICH ENVIRONMENT you are currently in, and trade accordingly. This is what most "systems" fail to accommodate. They do well in one type of environment, and get slaughtered when the character of the market changes. My spaghetti stuff helps out A LOT in this regard. When the spaghetti stuff gets spread out, be looking for the big gainers. And when it starts compress, look for smaller swings, and be content with more frequent, smaller gains.
Edited by K Wave, 25 April 2018 - 09:15 AM.
The strength of Government lies in the people's ignorance, and the Government knows this, and will therefore always oppose true enlightenment. - Leo Tolstoy
Posted 25 April 2018 - 09:53 AM
Who in the hell in their right mind would design a system where your one loss is twice as large as your expected gain per trade?
Either a fool or a fraud. I was just trying to explain various risk/reward scenarios.
For example say I am trading 1 or 5 min chart on YM. My methods are designed to allow for 5-10 point loss, while looking for 25-100 point again. This is very variable depending on the size of the air gaps in the charts.
You sound like you are a high reward to risk, moderate win rate, VST trader. My trading philosophy is somewhat similar to you, except my trades run a little longer than yours.
Edited by NAV, 25 April 2018 - 09:54 AM.
Posted 26 April 2018 - 01:53 PM
This is good stuff and I commend it to everyone's attention.
Mark S Young
Wall Street Sentiment
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Posted 26 April 2018 - 10:01 PM
I was surprised at NAV's excellent, definitive and exhaustive description of what trading edge is. Is it possible that that definition is strictly applicable to trade management in systematic trading?
Posted 27 April 2018 - 12:17 AM
F&D,
having methods that allows one to make quicker or better decisions
having actionable information other's may not havebetter, faster equipment or data feedquickness, on the floor I saw people complete transactions before my eyes so quickly that I could comprehend what happenedtrading size (in some orders are prioritized depending on the size of order flow from particular sources)
All the stuff you mentioned above add to the trading edge. How much effect it has on the trading edge depends on how short or long your timeframe is. If you are a intraday trader or a very short term trader playing for say 5-10 e-mini points, every single point saved in slippage or early action means a lot. It is definetely an edge. But for a intermediate term or long term trader who plays for 100-1000 SPX points, saving 1 or 2 points by early action or slippage is negligable or does not really add to his edge. To those traders, the real edge comes from letting their profits run and minimizing stop sizes.
http://www.thebalanc...eed-one-1031099
Conversely, professional traders will tell other traders what trade they are about to make without any hesitation, because other traders knowing about the trade, or making the same trade, does not affect the potential of the trade at all.
Again this is not completely true. It completely depends on the timeframe you are trading. Those trading on shorter tiemframes and for smaller profits, better not disclose their edge or trading strategy. If they do, they will quickly lose their edge. If i were scalping for 2-3 emini points and i have 10000 folks following me and all place their orders at once, then the slippages would get so big that i would lose that tiny edge that i have. Remember the Woddie CCI guy. I used to watch his trades in real-time. Once he got popular and had a huge following, he lost his edge completely. Those zero line rejects use to create big slippages. I have seen that happpen over time. I know of many traders who have experienced it. But for those trading larger timeframes and for larger profits, it does not matter one bit, if the entire planet knows his strategy. Cuz the game with longer timeframes is more psychological than technical and a few points slippages won't affect the outcome. Letting the profits run is what creates the edge there, which is more dependent on your mental game and less on technicals. So indirectly you could call a strong mental game as your edge.
Posted 27 April 2018 - 12:36 AM
Talking about Woodies CCI, here's what could have happened IMO, based on my observation. Let's say you were trading a zero line rejection on CCI(14). Now once the whole planet knows that it works, here's what a smart guy would do to improve his edge. Let's say you were trading a 5-min chart. Instead of waiting for a 5-min candle close, you place your order 10 seconds or 5 seconds before the close. Then you have gained an edge over your competitors. Of course the downside is that upon the candle close, you may not get the signal and you get whipsawed. But who cares ? If 5000 people placed the orders before you and they gained an advantage over you, with your own system, how would you feel ? As a matter of fact this is what the Woddies CCI folks started doing. Some tried to prempt the signal by moving to a faster CCI, a CCI(7) instead of CCI(14). What all these does to the price is that a huge amount of trades happen before the CCI(14) zero line reject and the price would have moved significantly before the actual CCI(14) reject happens. That kills the trading edge completely. In the end, we know how the story ended. The entire Woddies cult dissapeared off the face of the trading planet. I can tell you there was nothing wrong with the Woddies system and it was a good system, if Woodie had kept it to himself. The more sensitive your trade expectancy is to slippages, the more closely you need to guard your trading edge/strategy.
It's not without reason the Algo folks co-locate so close to the NYSE paying huge fees. Those microseconds of early information is their edge.
I have posted real-time trades on trading forums for years and not lost my edge. Cuz, i place my trade first and then post the trade details. Also i don't disclose my trading strategy, not because i do something unknown to the technical world, but to save my edge, given that i am a VST to ST trader.