I'm sorry for confusion and misunderstanding. After reading this forum for awhile I accidently found acrary's posts. I read almost all of them. The guy is a genius. Now I understand the difference between market character and real edge, and how to test ant track it. This is really what was missing in understanding of trading systems.
Now as a newbie with only 2 years of experience, looking back I can point a few big mistakes newbies make:
* thinking that all you need is to find a trading method and then you won't have to think about anything anymore, just trade it
* relying too much on backtest results, and even forward tests
* relying on a single trading system, so that when it fails, the whole trading process fails. Instead, use at least 3 trading systems with uncorrelated results (i.e. diversification across systems)
* misunderstanding the edge. (Big thanks for acrary here!) When edge is defined and formalised, it can be tracked by simple statistical methods, so when a given edge diminishes, you stop trading it.
* taking too much risk (this one is too common with newbies). Especially when one sees maximum historical drawdown of N points, he can think that it is very unlikely that the future drawdowns exceed 2N points. This is very wrong, markets change, and suddenly you get 3N drawdown. Now if you based your money management on the premise that you won't get drawdowns bigger than 2N and tune up your risk-per-trade accordingly, you are killed. Simple as that. Do not ever base your money management on historical drawdowns only, because markets change, volatility changes, and predicting future drawdowns is the same as predicting future price movement - futile. If you do, then know that someone that doesn't will take your money.
* reading too much books about trading. Most of them are total BS. Not only that, but lots of them are written very very poorly. Avoid the likes of Larry Williams, especially stuff like his BS money management formulas and day-of-the-week/month optimisations. Read Alexander Elder, Mark Fisher, Toby Crabel, but just for overall understanding, don't trade their trading methods because I'm almost certain that you will fail. Think with your head, find your own edges and keep them in secret. I never heard of anyone that became a millionaire while trading a system described in a publicly known book about trading.
* thinking that trading is easier than any other job. Wrong, trading requires a lot of intellectual and mental efforts. If you cannot handle it, stay in your 9-to-5 cubicle, it will be alot easier on your mental health and provide stable income.
* overtrading. Thinking that the more trades will result in bigger compound result. Which could be true in ideal world, but... They choose daytrading, where comission/spread is quite big compared to profits and losses. The volatility and direction of intraday price is very unpredictable. It's certainly not suitable for inexperienced traders. Brokers like daytraders and advertise daytrading.
I'm sure there are many more things, but I guess these are the biggest and most common mistakes of the newbies. Well, this post won't change anything, just reading it won't prevent newbies from making these mistakes. It's very hard to believe until you get hit with reality check. But that's okay, newbies just add more profits to already profitable traders.
So which half do you prefer now, left or right, front or back, top or bottom, inside or outside? I'm feeling very torn in multiple directions as you can see.:eek: