Mentors and education
- Thread starter trader2713
- Start date
Absolutely right. It took me 12 years to learn that. Position mgmt, scaling and EXITS are 90% of trading success, while entries are 10% of it.
And that's because most trading books I learned from focus way too much on basic chart patterns and basic s/r levels instead of the math and position mgmt which is what traders Really need to focus on.
An Edge is a big word.
It’s simply a bias that works against randomness.
Something that makes the difference.
Trend following can be an edge.
Mean reversion can be an edge.
If you can tell a coin is loaded,
Which is it will land head more than tail,
AND
That you manage to get 1Risk : 1Reward for it,
Then you got an edge, favorable situation,
Positive expectancy !
As I said ...
You either get a better payoff $ for the odds %.
Or you get better odds % for the payoff $.
You need some kind of information:
- Prior information, base rate
This is trend following, Mean reversion ...
- Specific evidence about individual case
This is more complex like horse handicapping
- Expected accuracy of the prediction
This is just a meta analysis but I leave it here.
Pattern recognition... all this stuff.
Anything that works against your uncertainty.
If your model (knowledge, understanding) is better than the one of your opponent. Then you likely have an edge.
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That is correct, but the evolution process doesn't happen in that environment, and most people stay in it too long, hoping they discover something. They need to get out of sim ASAP. It should constantly revolve from there to an objective trading model, which unfortunately the majority still fail at. Ultimately, it comes down to separating the wheat from the chaff, and in this business, wheat can become chaff in a matter of seconds.
For example...
You’ve remarked that lately,
Trends are reverting after the fourth leg,
Let’s say it happens 3 times over 5 times.
You bet on a reversal with a probability of 60%
You need to get at least 2 rewards for 3 risks,
Otherwise in the long run you will lose money.
Set the targets according to the volatility, past behaviors.
Try to get the best entry to Max it out.
Voilà ...
An edge can be based on the past week,
If you can prove the principle that there is similarities over week.
It doesn’t have to be valid for all time and places.
Some stuff change... Some don’t ...
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KCalhoun,
I am back testing different trade management exits of Fixed Targets R:R1,2,3, the max the price went per trade, and 2 trailing stop methods to trail a winner.
From your experience, which exit methods makes the most sense fixed targets or trailing stop?
I'm sure he'll chime in, but here is my take on it, and I've done quite a bit of testing in various market environments, all quantitative. In terms of trend following (not scalping), I've yet to find one fixed target method that outperformed no target. I think it's very demoralizing to choke off profit potential, especially during drawdown when you really need those outsized gains to boost confidence and make new equity highs. I'd recommend you just use a fixed stop, let the profit run and adjust stop as market moves in your favor. Let the market take you out.
I use both often daily. My favorite strategy is hybrid intraday swing trading.
Buy 2day high "out" breakout by 10am, using low of day hard stop on half position and trailing stop on other half.
I learned that from one of my live Vegas seminar participants years ago, a veteran market maker
Thank you so much fractalize for sharing your experience.
That is very interesing your results.
Yes, the one thing I am noticing in my data collection with trailing a winner (or trailing stop) is I do not know when that big $1000 trade is coming using trailing stop to make up for the few losses prior. Like just recently crude oil drop about $2 in 20 minutes, trailing a winner exit method made $1400, while profit target made $300. Of course a bigger sample size is needed, but I understand your point, especially on the confidence building point.
I will keep on collecting data with trailing stop/winner method and see how it goes.
What if low of the day is 1000 points below your entry? Surely you have exceptions I assume