The same trading strategy can’t be in sync with the market conditions everytime. It eventually falls out and you have to work on finding an edge one more time. Before that, you should have a clear answer to if it is just a temporary lapse or have you actually lost your trading edge. Setting some early alerts is good to give you the right answer. Compare the trade return and win rate to the expected return, if there’s a huge difference it’s time to re-evaluate your strategy and find an edge.
How to know if my edge is going away?
- Thread starter Oadmani
- Start date
for example:
The Quant Meltdown August 2007
https://www.researchgate.net/public...August_2007_The_Quant_Meltdown_of_August_2007
Thanks for this example. I'm not at all sure how hedge funds traded in 2007 but I'm pretty sure I don't trade that way and never have so I don't know what edge they had which unexpectedly failed.
If this is all we have to worry about, I don't think we need to worry.
You might have gathered that my position on edge failure is as a sceptic. I don't think a real edge fails, I think edges that were an illusion and provided abnormally positive results for a historic period of course fail, but they were never true edges anyway.
But I have to be open to being convinced so some other users might be able to add something here.
Finding an edge is not an evergreen way to make money in the market. We all know that financial markets are very vulnerable to news, especially economic news. Therefore, it’s better to re-evaluate your trading strategy regularly. When you are not making enough profits as you used to earn, you better accept that you’ve lost the edge.
When you are doing everything in your control, be it following your trading plan or your strategy but still your win rate starts decreasing, that clearly suggests that you’ve lost your market edge. That is why it is advisable to keep a trading journal because this is the only way you can realize the issue at the right time.
You need both to be a successful day trader.