defining "edge" with discretionary trading

[Simples]

How you "behave" doesn't meet the criterion of "edge".

Quite the contrary. You might have every analysis proving "edge" in theory, but without acting on it, all of it remains empty intellectual exercises rather than actual realization. Same concept with all realization in life.

For trading, actual capitalization on opportunities is the only and ultimate test of market understanding IMHO.

Merrian-Webster definition:
d: a favorable margin :advantage<has an edge on the competition>​

Not sure how you define it, but your definition seem to lack the probabilities of failure. Having an edge doesn't mean you may easily succumb to a few failures (15-30 of them!), rather, it means you can overcome the inevitable failures that markets so eagerly provide us all, by having the odds on your side (for now - but, this might change later!).

Not to worry.... there is no edge to be given away.​

Every set of trading rules can be analysed to result in some sort of a probabilistic expectancy, which can be a positive or negative one (in one or more perspectives). What has transpired in the past, might more or less continue in the future, or else one will have to adapt.

In an absolute sense, you're right. Markets or the world, could change this instant, anihilating all edges. But, and this is a big but, this perspective is incredibly non-constructive and just plain improbable, crossing the brink of self-doubt and self-sabotage for a trader/investor.

Back to original question @KMeriwetherD : If you're trading discretionary, and you don't want to trade systematically, you ask where the edge is?

It's in yourself only!

 

[K-Pia]

An Edge is for me an Advantage.
An Advantage is either an Overlay,
Or it can be an Underlay ... That's it.
That's the only edge def I can think of.
What gives you this edge is such & such.
But in the end. You Gotta beat the fairness.
Or in other word : Copper the public mistakes.

 

[Redneck]

defining "edge" with discretionary trading

Then you are back to square one where you only have an edge if you follow the signals without discretion.

So, again, as someone who trades with discretion, what is your edge?

Before addressing this crap...

Next month will be a year

=====================

There three stages to manual trading.., each built upon / supported by its predecessor

Mechanical

Discretionary

Intuitive


Without a foundation built upon mechanical... discretionary is nothing more than random.., actually a random variable

Can an edge / edges be formulated from a random variable - hell no..., not consistently..., nor reliably


Purposely skipping intuitive - you're nowhere close (as in.., not even in the same universe)


=====================

Edges.., do they exist - certainly

Are they repeatable - Yes

Are the reliable - Yes

In no particular order - they come from the mkt (just never lose sight - the mkt is uncertain)..., the trader..., the trader's consistent application of a routine / process


=================================

I am a developing trader who is just coming out of a phase of experimenting with algorithmic non-discretionary trading.

With that approach, knowing what your edge is can be directly quantified with proper back testing.

Since then I have abandoned systems trading because I became frustrated with the non-discretionary aspect.....a.k.a ignoring context all together. (and the seemingly inescapable obnoxious drawdowns based on dumb trade after dumb trade).

I now am focused on trading with discretion based on market structure context and price action.

What I bolded is horse shit


RN

 

[KMeriwetherD]

@Redneck
....well you're an abrasive SOB, aren't you. (Not that I don't appreciate the response).

Look, I actually don't think we have schemas for markets/ trading that are so different. You say "manual" trading .... I say "discretionary". You say the 3 layers are mechanical, discretionary, intuitive........ I say the 3 levels are context,hypothesis, screen time experience. Basically I think we are both saying that, first, one needs to understand the meaning behind the picture which is the chart (to put in obnoxiously simplistic terms). Then you need to understand how to choose the situations that present trades in your favor and also what "in your favor" even means. Finally you should be able to do so without the scaffolding of a recipie. You should have "instincts" which come out of hours and hours of applying the "recipies".

I would also like to defend my "horse shit" statements. You may not believe in algo trading, but for those who do devote themselves (profitably), the results of a walk forward back test do provide a quantified representation as to why they are profitable. I don't know why you think an algo trading approach does not ignore market context, but it absolutely does. No matter how complex your signals are, at the end of the day, algo trading requires you to take blind trades. I can tell you from my experience with this form of trading..... sometimes those trades make zero sense if you consider them in the big picture. For my last "horse shit" statement..... what is your issue with forming a directional opinion based on the larger picture and then using short term price action to frame trade set ups that seek out favorable risk/ reward. Why is that "horse shit"?

 

[Laissez Faire]

I don't believe in discretionary trading (gut feel).

And neither should you.

 

[newwurldmn]

I don't believe in discretionary trading (gut feel).

And neither should you.

Descretionary trading doesn't mean gut feel. it just means the final decision to buy or sell is made by a human vs a computer or model.

 

[Laissez Faire]

And what is that decision based on then?

Descretionary trading doesn't mean gut feel. it just means the final decision to buy or sell is made by a human vs a computer or model.

 

[newwurldmn]

Some kind of analysis (which can be quantitative or qualitative or a combination) and human interpretation of those facts.

 

[Laissez Faire]

You pretty much always need to use 'human interpretation'. It's just that when you use a methodology and tested system, whether that's automated or manually traded, your decisions are made and planned in advance. You enter/exit based on rules/signals.

Discretionary traders seems to be more intuitive and relying on memory/perception which often is wrong. Also, most discretionary traders don't have ten thousand hours of screen time to justify such an approach.

 

[newwurldmn]

You pretty much always need to use 'human interpretation'. It's just that when you use a methodology and tested system, whether that's automated or manually traded, your decisions are made and planned in advance. You enter/exit based on rules/signals.

Discretionary traders seems to be more intuitive and relying on memory/perception which often is wrong. Also, most discretionary traders don't have ten thousand hours of screen time to justify such an approach.

Discretionary doesn't mean lacking a methodology. It means that the decision to buy/sell is made by a person rather than a computer. Where is the "human interpretation" in an automated system?

Risk Arb, Convertible Arb, Biotech trading, many styles of macro trading, flow trading at banks are all examples of discretionary trading markets where there have been many successful traders.