What is your edge ?
- Thread starter oilfxpro
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TheBlackHand
Guest
Hmmm. This is where a lot of people fall down.
The fact that the market is trending down allows you to make the money going short. I'd suggest, the setup you mention from the book (or elsewhere) has little to do with it. Thats the big problem with TA/PA that most dont seem to understand.
If the market is puking, sell.
If the market is climbing, buy.
You dont need to wait for some silly pattern/set up. Youre just losing out on money doing that. Its really dumb. Theres no reason for it. Its also why TA appeals to those who follow and dont think.
Of course your comment about support is correct IMO (if its worth anything!).
Now, can someone please take the other side of my trade: explain why waiting for a magic pattern/indicator or other set up is a good idea? Im all ears.
TheBlackHand
Guest
Not a very good one is it. In fact, after costs etc, it probably isnt that profitable at all.
Theres more risk if you hang round waiting for the set up he mentioned. Why do you want to assume more risk?
If you say you teach others, surely you should be aware of that?
Please let me know if you have another perspective.
Thanks.
Quote from TheBlackHand:
Not a very good one is it. In fact, after costs etc, it probably isnt that profitable at all.
Theres more risk if you hang round waiting for the set up he mentioned. Why do you want to assume more risk?
If you say you teach others, surely you should be aware of that?
Please let me know if you have another perspective.
Thanks.
OWiz did not describe a specific setup; he mentioned a scenario in which you've already identified and researched a setup with a better than even chance of succeeding ("For futures, let's say during a down trend, you use a trade setup based on your prior discovery or on a book to take a short trade. That setup is more likely to work as long as we don't hit longer term support.") He's assuming you've already done your study and found that the setup works more often than not in achieving the minimum profit target of a trade.
He then said, "So your win% on even risk vs reward is high enough to allow you to trade profitably, and if over time you are able to trade profitably without letting emotions like revenge trading affect your system, then you can prove to yourself that you have both an edge and that the markets are not random."
And OFX asked if that was a profitable method and I replied "Yes".
Because it is. That's how my trading plan generates profit every day. Setups with better than even chance of achieving my goal, combined with enough trust in the system to keep on trading the setups no matter what I think (such as my old favorite, "It can't go any higher, I really should short here", which is one of the more dangerous thoughts in trading).
My perspective is that technical analysis is a tool for locating "value zones" at which to consider entering a position and technical price action provides the method of trade entry and management.
For new traders who are making trading their new long term career, day trading one instrument is the most common path I have seen. All it is is a risk to reward greater than 1, and a 50-50 chance. Most take time to understand this because it is difficult to not become emotional in day trading. However to take a risk-reward trade and keep it at 50-50, you only have to pick any entry in the bottom half or top half of price action. It's not that hard, all it takes is understanding of this principle, and understanding that losers must be cut short because you'll make more in the next few trades if you keep executing entries and exits exactly as your rules say.
For daytraders who have been working hard for awhile but are still having a tough time with the above, I would recommend trying another instrument. Crude oil and silver are hard. Some love them, but others don't. Try the Russel 2000 (TF) or forex. If you have a small amount of money, forex is probably better because forex has adjustable leverage.
Beginner traders who have not traded live yet you must understand the concept of drawdown. Using maximum leverage does not work. A 50-50 win rate is hard to achieve for beginners, so you will have 3 or 10 losses in a row. So if you leverage all the way, you will lose your money after your 2ND or 10TH trade.
For daytraders who have been working hard for awhile but are still having a tough time with the above, I would recommend trying another instrument. Crude oil and silver are hard. Some love them, but others don't. Try the Russel 2000 (TF) or forex. If you have a small amount of money, forex is probably better because forex has adjustable leverage.
Beginner traders who have not traded live yet you must understand the concept of drawdown. Using maximum leverage does not work. A 50-50 win rate is hard to achieve for beginners, so you will have 3 or 10 losses in a row. So if you leverage all the way, you will lose your money after your 2ND or 10TH trade.
"Puking" and "climbing" are subjective terms, although of course, I understand which direction a "puke" goes and which a "climb" goes.
The problem, as I see it, lies in the fact that the market never goes anywhere in a straight line. But, inherent in the idea of a pattern, of whatever sort, is that the movements against your preferred direction are circumscribed to within some kind of limit. This enables you to hold a directional trade longer than you might otherwise, so that what you miss on the front end, you get back on the back end. Plus, since the "back end" is where the market's tails are, that's where it's important to be holding.
Getting in on the first tick off a top or bottom is nice, but if you don't have some guidelines or rules on how to hold on to the position to achieve the maximum favorable excursion or to know when you were wrong and the signal was a false positive, then you may end up getting a relative pittance for your good fortune in catching the turn exactly or you may end up getting whipsawed because you didn't have a clear plan on what to do with an adverse excursion.
When I get in a trade, every move after that is pre-programmed, but all of the pre-programmed moves flow from the entry logic. So, if I enter a trade without a valid entry signal, all of my pre-programming is worthless and I'm flying blind. It's just an anecdote and I posted it in another thread today, but I once waited for the ES to move 24 points off of a pivot point before getting a confirmation of a signal. The kicker of it was that I ended up taking a ride on that move for a 16 point gain at exit. I don't recall, but I'm sure I didn't exit at the exact top, either, since that's not how my exits work, so I'm sure that at one point I probably had a 20 point gain.
In fact, after I looked up that trade in my database, I looked more broadly at my trade results and found that the longer I waited for a confirmation, the bigger my gain in the end. Obviously, I can't vouch for anyone else in this regard, but at the very least, it does not appear that waiting for my set-up to confirm a trigger hurts my results.
So, I would take issue with the idea that there's no benefit to getting a confirmation of a move before getting in on it. That is, of course, unless you've got a better way of identifying a turn that's going to end up going in your direction long enough for it to matter to you, but that's a skill more claimed to exist than one that actually exists.
TheBlackHand
Guest
Youve missed the point. Im perfectly aware he didnt describe a setup. Its really irrelevant anyway.
I'll make it easier for you:
Its the 'flash crash' of a few years back. Do you just sell instantly, or do you wait patiently for your setup to appear, thus missing out on $x0,000?
An extreme example I know, but it illustrates the point. Why wait for your set up when the market is trending/initiating/out of balance/how ever you want to describe it?
All Im saying is that youd be leaving money on the table. What good business person would do that? Youd also be increasing risk. What good business person would do that?
This is the trouble with TA you see. No serious trader/business person would go near it.