edge test

D

darkhorse

Surfer's mentor thread has inspired me to offer an observation of my own:

If you doubt your edge, you don't have one. Your doubt represents a low quality approach, a lack of understanding re market mechanics, or both. Even if you have a valid mechanical system, adding doubt to the mix invalidates the crucial psychological component of the system.

To frame it in terms of alcoholism: "if you think you might have a drinking problem, you do."

Which in this case would translate to, "if you think you might not have an edge, you don't."

While great traders deal with uncertainty every day, they have supreme confidence in their mental structures and their trading heuristics. Even quant traders who continuously discard one strategy for the next have a testing and evaluation methodology that they can place full confidence in. They don't wake up feeling like they have to reinvent the wheel every month.

I think a graveyard for many traders is their willingness to stay in the ether of muddled confidence for years and years, never taking the time to really get a bone deep level of understanding when it comes to market mechanics and human observations.

p.s. hi everyone my name is darkhorse and I have an ET problem...
 
Quote from vegasoul:

you should apply the edge test when you are in a 51% drawdown.

confidence and perfomance are postively correlated.
More...

Decoupling that link is part of what I'm talking about. The stronger your understanding of markets, methods and management, the more permanent your confidence becomes, regardless of short term performance.

If your edge and your stomach are strong enough, a 51% drawdown wouldn't necessarily have to phase you if

a) it's within your normal paramaters of expectation to get clocked once in a while

b) your high volatility system has a demonstrated capability of producing 100%+ returns

and

c) you have a large enough trading account that a 50% drawdown would neither crimp your lifestyle nor hamper your ability to trade in any way, giving you full confidence that there's plenty of time and resources to come back strong.
 
2 cents:

Edge is relative, comparative and different for individuals. And it's progressive and a moving target according to a trader's understanding of market dynamics.

Edge relates to also the ability/skills and knowhow of capturing how much fraction/portion of price movements.

Edge can be closely related to a trader's mindset which is to be updated/improved constantly and dynamically according to any changes of market behaviour/conditions.

Edge is all about probabilities, in terms of its theoretical measures and realisation of values. And it involves heavily the probability and psychology of filling the gap between the measures and the values.

Edge ... :confused:
 
Quote from OddTrader:

2 cents:

Edge is relative, comparative and different for individuals. And it's progressive and a moving target according to a trader's understanding of market dynamics.
More...


Maybe, but I still submit that the stronger the trader, the more permanent and stable the edge becomes, even in the course of a drawdown. A drawdown that is a normal and expected turn of events is one thing; an unexplained or unexpected one is quite another.

I think, in a sense, that I am disagreeing with a core belief that is often presented on ET. A real edge shouldn't be waxing and waning all the time. It should be solid.
 
Quote from darkhorse:

Maybe, but I still submit that the stronger the trader, the more permanent and stable the edge becomes, even in the course of a drawdown. A drawdown that is a normal and expected turn of events is one thing; an unexplained or unexpected one is quite another.

I think, in a sense, that I am disagreeing with a core belief that is often presented on ET. A real edge shouldn't be waxing and waning all the time. It should be solid.
More...

Another 2 cents:

Not knowing much about ET's general belief of edge, I'm afraid, imo, a really good and solid edge ideally would have already provided/calculated (probability-wise) all Unexpected or Abnormal drawdown trades that should be part of the maximum risks to be managed (by a system designed by the trader). :confused:
 
Quote from OddTrader:

Another 2 cents:

Not knowing much about ET's general belief of edge, I'm afraid, imo, a really good and solid edge ideally would have already provided/calculated (probability-wise) all Unexpected or Abnormal drawdown trades that should be part of the maximum risks to be managed (by a system designed by the trader). :confused:
More...


There is no way to predict an "abnormal" drawdown because if it were within your expectations, it wouldn't be abnormal. You can protect yourself from the unknown to a reasonable degree but overprotection is counterproductive.

Just as any of us could get a rare disease or be hit by a truck tomorrow, you can never fully compensate for risk in life or in trading.
 
Quote from darkhorse:

There is no way to predict an "abnormal" drawdown because if it were within your expectations, it wouldn't be abnormal. You can protect yourself from the unknown to a reasonable degree but overprotection is counterproductive.

Just as any of us could get a rare disease or be hit by a truck tomorrow, you can never fully compensate for risk in life or in trading.
More...

Q
Only the besy traders have eliminated these errors from their trading. At some point in their careers, they learned to believe without a shred of doubt that Anything can happen, and to Always account for what they don't know, for the unexpected.

--- Trading in the Zone (By Mark Douglas), p.97
UQ
:confused:
 
Quote from OddTrader:

Q
Only the besy traders have eliminated these errors from their trading. At some point in their careers, they learned to believe without a shred of doubt that anything can happen, and to Always account for what they don't know, for the unexpected.

--- Trading in the Zone (By Mark Douglas), p.97
UQ
:confused:
More...


Sorry, I don't know what a besy trader is either, can't help you there.

Obviously anything can happen, up to and including a suitcase nuke going off down the street. So you mitigate risk to a logical degree via correlation watch and money management and that's it. The only way to protect against all risk is to not trade (and not live). Where is the confusion in that?

Considering the speed with which you pulled that quote, I'm beginning to wonder if you are actually thinking about these :confused: observations or just scattering them aimlessly like dandelion seeds...
 
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