The learning cycle for a newbie trader

[Soul-Trader2004]

gopigo - this is unrelated to this thread - would you mind starting a new post with this question please

[Alderlug]

You have realised in an instant that the trading game is about one thing - consistency of your 'edge'

Hi Soul-Trader and all,

what do traders mean by 'edge'? I only know this phrase from mathematics. But on the other hand most of the people always emphasize that nobody can predict the market. So what is the 'edge' then if accurate predictions are not possible at all no matter which special TA you prefer? Is discipline to stick to your 'method' already an 'edge'? I'm a bit confused here.

Thanks in advance for your feedback.

Best regards.

[Soul-Trader2004]

your edge is merely some TA or other method that increase the odds of a favorable outcome at the entry of a trade.

all down to probabilities

Mine is TA based as are most (there are others tho)

most novice traders problem is not 'edge' based but having the conviction to actually play the edge for good or bad without the associated fears and knowing that over a number of trades the results will be favorable.

Even the simplest systems can make money if the trader is committed to it - trouble is that most are not.

hope this helps

[nzbryant]

Soooo true Soultrader.

I was proud of all my backtesting and analysis, and pride comes before the fall. I made 12% in a week (on stocks), then lost it the next week as I was too uncertain (scared) to follow my system, when I didnt know if I would keep making money. A profitable system after commissions IS hard to find, and I dont believe people who say it isn't (all my testing has proved that out), but when you find one you are only half way there. Then the 'balls' and psych comes in.

[Soul-Trader2004]

nz - theres one reason and one reason only if youre scared opf pulling the trigger.

(rolf harris voice comes in)

Can you tell what it is yet?


Too large a stake and over leveraged

if you get scared once in a while (we all do, even after years occasionally) just drop your lot size by 50% or even more till you feel the flow again

hope this helps

[nzbryant]

Yeah - that works, but its not the answer. Once your account gets large, 2.2% bets (which are optimal for my strategy (Monte Carlo tested)) even that or even 1.5% gets scary as the cash in absolute terms is getting large. I risk $700 per trade, which is scary - though if I cut size I'll never get anywhere. If I do 1% risk trades I cant make more than about 20-30% per year. If I do 2.1% I can make 100% a year (compounds so not linear) with 20% drawdown.

[Soul-Trader2004]

greed greed greed

sorry mate - but 30% a year is as good as any fund out there

as for monte carlo tested - well, we all know who are the rich folk there and it aint the punters

it will kill you in the end mate - your choice

im guessing i stake about the same amount as you (guessing cos i dont know how large your stop risk is) but i only use leverage of 5:1 and only 2.5:1 at the riskiest part of the trade (the beginning) - that equates to around 0.7% of capital risked per trade based on my stop levels

It does get uncomfortable if you have large jumps in the amount you stake - for example if you are buying 300k one week and next week its 400k thats a massive jump in terms of your psychology - stage the changes and dont increase till your brain tells you its happy to

slow growth is the key to successful trading in my book.

dont even look at the balance when trading, just the pips. Cover that part of your monitor with the chat room or even black tape lol

[nzbryant]

Greed?

I know several people who make several hundred percent a year and do it consistently. Its called ambition if you do it the right way, with skill, greed if you do it the wrong way.

Please everybody - we can not compare ourselves to funds - and I mean that in a good way. Maybe in fx we can given liquidity, but not stocks (which I mainly trade). Anyone who has worked in the finance world knows that funds dont usually do that great as a) they move a lot of money - they cant jump into a dip, and sell on the spike the next day; and b) they make decisions by consensus (with the odd exception like Tudor Jones who does about 100% a year but would do more if he had smaller size - and he has admitted that); and c) they are risking their jobs if they underperform the indices and that makes them conservative.

ANY individual moving relatively small amounts of money (i.e. less than $5m) and not making decisions by consensus and who isnt being compared to a benchmark should way outperform managed funds.