What do you do to get your edge?

virtusa said:
My normal distribution is more to the right. So more in the profit zone. That means that I don't need the log version. The expectancy is close to my real trading results in the long term.

I have never seen the log normal one. I find everywhere the one I did post.
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Everywhere is for the layman.

You might find a copy of “KELLY CAPITAL GROWTH INVESTMENT CRITERION” on b-ok.org
 
Laissez Faire said:
I agree with that. Another big factor would be capitalization. There are guys who are rich enough that trading a large account is similar to trading a demo account. On the other side of the spectrum you have guys who barely managed to put together $3K for trading and where even a small loss stings.

Another factor is leverage. If you're trading non-leveraged positions with long term holds you don't lose sleep over normal turns in the market cycle.

Usually, most guys who enter trading are not rich to begin with, so they typically fund small accounts and trade with high leverage in order to have a chance to make it. Or so they think. And the inevitable result is usually blowing up.

I was perhaps a bit too harsh with myself earlier in this thread. I do believe I have a small edge, but the margin of error is still fairly high. Meaning I'll have to execute fairly well and be able to stay out when things are not clear in order to get ahead.

The one thing people can't escape regardless of method is expectancy/profit factor. The larger it is - the better.

If you make sure that the risk/reward on your trades is at least 2 or preferrably higher, you can still make good money with a fairly low win rate. However, that requires that you do take your stops AND that you do take your full winners.

Most people take their full losses (or more) and cut their winners short. So, in the end they're really trading a 1:1 R/R system or even an inferior R/R risking 3 to get 1. And since their win ratio is far less than 80 %, they simply lose.
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I'm starting a new thread shortly, it's will be an educational thread on penny stock trading.
This will be a very rare thread from me where I lay out specifically how to trade stocks (penny stocks in this instance) and it will be one where I will clearly show some trading edges.
Baron has given permission, we are currently discussing.
 
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virtusa said:
https://samuraitradingacademy.com/trading-expectancy/

Here's the thing that you don't often hear on the trading forums - your win rate alone isn't that important and neither is your reward to risk ratio. What really matters is what happens when you combine the two to determine your trading expectancy.

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)
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This got an upvote. Why not conidtion on E(X|X>1%)p(X>1%)
 
Statistical Trader said:
By definition, the expected value does not depend on the distribution. The formula is the same irrespective of the distribution.

The distribution does affect other metrics, however, and as you rightly point out it is valuable to know the distribution of your profits and losses.

I like to look at the distribution of all my mark-to-market, unrealized profits and losses. I do not merely look at the distribution of realized profits and losses.

Once you have an estimate of the distribution, you can compute many other useful metrics.

The expected value does not reflect risk. Knowing the distribution can help determine risk. There are many definitions of risk and I personally like to use several. A new strategy has to pass all risk metrics in order to be considered for live trading.
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Very good post. They are rare on ET.
I realize now that I do these things too in one way or another. But I am not a statistical expert.
I watch the evolution of my trades in detail and check for:
  • Good entries. My experience is that a good entry is vital for good performance. I only enter after a confirmation of the trend. I noticed that after that confirmation you are from start almost in profit with only small open losses, due to the volatility. This leads to closer stops, which leads to the potential of increasing the leverage. That makes much more money then trying to catch the bottom or top with large stops and logically much lower leverage and most of the time bigger open losses.
  • P&L of each trade. And mostly the behavior/evolution of the LOSS side of the open P&L. Open loss should be small and have a short duration.
  • Distribution. Should be assymetric. The more to the right (in profit zone) the better. The lower the lines is in loss zone the better. The more the top goes to the right the better as that means that my average profit per trade becomes bigger (so not the majority of trades with small profits).
  • Expectancy.

This is the distribution I dream of. :D
The-maximally-asymmetric-stable-Cauchy-distribution-It-is-principal-ancestor-of-the-1.jpg
 
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Illini Trader said:
I heard that if you are daytrading you put your curser where you want the price to move to then curse if it does not do it.
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From "hearing say" you hear a lot of lies.
You are confused and mix things up. You speak about cryptos.

To make your post correct for daytraders you should just move the word "not" on the right place:
"I heard that if you are daytrading you put your curser where you want the price not to move to then curse if it does do it."

And a curser is no a cursor. :D Use Google translate.
 
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virtusa said:
From "hearing say" you hear a lot of lies.
You are confused and mix things up. You speak about cryptos.

To make your post correct for daytraders you should just move the word "not" on the right place:
"I heard that if you are daytrading you put your curser where you want the price not to move to then curse if it does do it."

And a curser is no a cursor. :D Use Google translate.
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I think your bad joke is worse than my bad joke
 
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