In search of the elusive "edge"
Final reflection for this week:
"If I can just find an 'edge' in my trading, prosperity will come my way.."
In my humble opinion, this approach, just like the "I want 10 pips per day" ambition, is more likely to lead to frustration and failure than good trading outcomes.
So what the hell is an "edge" anyway?
I suppose an "edge" can really be anything you want it to be, and no doubt means different things to different people. But I suspect that many would-be traders might define it as a set-up or series of set-ups, based largely on technical indicators, that deliver better than 50/50 outcomes when combined with the right money management - a way to "beat the market" with reasonable consistency based on technical indicators and supported by "good trading pyschology" - but more of that later.
If the truth be known, I never considered the concept of an "edge" before I started lurking around FF a few months ago - somehow it just wasn't a relevant concept to my trading, though it did get me thinking about what it all might mean - albeit briefly.
On reflection, I prefer to think of an "edge" (if I must think about it) as the OUTCOME of my total trading methodology. It is my results first and foremost, and perhaps it is also the way I physically execute my trades based on my methodology, with the 'edge' sitting in the capability of my total method - but in any case it really doesn't matter, to me anyway.
So I suspect that when most new or frustrated traders say things like "I am still looking for an edge.." what they are really saying is "I haven't yet found a SYSTEM, based on technical indicators, that allows me to beat the market." If you read my first post in this thread you will know why I believe this approach will most often fail, and deliver frustration and losses rather than profitability.
I therefore don't think you should LOOK or SEARCH for an edge - simply because it is unlikely to be FOUND or DISCOVERED. Therein lies the crux of the problem, and for many would-be traders, possibly unravelling several HUGE assumptions about what it takes to trade profitably and consistently - not because I said it here(!), but because this realisation is evidenced in practical ways through lack of success, utter frustration, behaviours such as system hopping and indicator hopping, and for many, giving up and moving onto a new venture. And no, an edge is not found magically by "looking in a mirror" as some of our Trading Psychology exponents would have us believe - because most often you simply don't know what you don't know.
So what's the alternative to searching for an edge, assuming that the concept of an "edge" (however it is defined by you) can be useful in one way or another?
Well, my suggestion is that you need to DEVELOP an edge, not SEARCH for it. And you should DEVELOP your edge based on the foundation of understanding reality #2. This leads to all sorts of questions, perhaps first and foremost:
What is the best way to "develop" my edge?
Unfortunately I don't know the answer to this question, because it will be achieved differently for different people, but I can suggest that it might look or feel like working with an ever evolving trading methdology.
It might start with personal research, paying for some good trading education, finding a respected trading buddy or mentor, or similar activities. I never found 'trading groups' of much use to me personally, though that may not be the case for others. Too often these trading groups were characterised by a prevalence of "group think" - a good place to develop your trading "system" with like-minded people afflicted with the same false assumptions - and a good forum to feel better about having crap results, through association with other crap traders. And a good place to be distracted from your own purposeful learning by the clowns that at fairly regular intervals say "check out my new system that I've been trading profitably with for the last month..." (check out some of the crap in the Trading Systems area of this website, for example!). I'm sure there are purposeful trading groups out there, but this was just my experience! But for sure the development of your method will then include a lot of self-learning and hard work. Lots of observing the behaviour of your selected market(s), analysis, documentation, understanding your own desires about trading and what kind of trader you might like to be - though the latter most often changes with time anyway once the realities of trading start to hit home.
It might be quite a systematic, analytical and consistently applied approach, but it should also be a flexible and adaptable one, because you need to EVOLVE your trading method based on new learning - and this is significantly different approach to "jumping to a new system" when the old one isn't working. You need to find satisfaction in the process of discovering that indicator XYZ is totally useless, or just noise, within your evolving method, and learning that your previously held assumptions are simply not correct - rather than assuming something must work and deluding yourself into thinking it will, just because you've spent 2 weeks studying how it works and you think your time was otherwise wasted.... this is reality, and this is what learning how to trade is all about. It is about the development of a method, and it is about bloody hard work and being brutally honest with yourself.
For those that like the concept of an "edge" it is NOT about finding your edge, but it is about developing your edge; and this can only happen when are you prepared for the hard work associated with the development of YOUR trading method. For most people, this is just too hard, and hence why most people give up and move onto something else - trading is not for everyone, after all.
EDGE: An Edge is a system or method that gives a higher probability of one outcome over another with positive expectancy.
That is exactly what i have been trying to say, but could not put it so eloquently!!!! Word up ,people this is GOLD
What is the most important for trader to be consistently profitable? Hard work? 10 000 hours of edge developing? I dont think so. People tend to fell for this concept as they see successful people and ask themself, "what have they done to achieve this and that?". Well, they were working hard, they put 10000hours into the project and they get it done.
To me it is just survivorship bias, I know a lot of people that were working hard and just failed, I know a lot of people that put 10 years into the project but had to return to regular job. If u want to play in NHL , do u have to work hard ? Absolutely. But is it enough? Do u think that other thousands potential players dont work hard (I know they do)? What makes different among those who succeeded and those who failed?
Wish to know the answer. Maybe its just luck, maybe they get to know right people willing to help, maybe they have more talent (which is luck as well) , or they found "aha" moment (or edge) as Fleming discovered penicillin.
Im not at 10 000 hours so far but have just 2000 to go. Will I be consistently profitable at the time? Who knows.
I acknowledge what you are saying about hard work on its own not being enough, and from experience I agree with you 100%, (though don't believe there is any place for luck in a sustainable trading method) but I think my overall message is about much more than 'hard work'....
The main thrust of my argument about the harsh truths of profitable trading are contained in my first post. I wonder if there is anything contained my first post "realities" (ok they are just mine as one example) that struck you as something new to consider that might benefit your current approach and/or if you found anything in there that you fundamentally disagree with? I am not asking you to answer my question here directly, though you are weclome to of course (!) but maybe there could be some points in there worth further consideration, regardless of whether you agree with them or not..
Excellent post, expect for:
If 'trading psychology' in it's common forms discussed around these parts, is a tangible and critical component of your ability to maintain a sustainable trading method, then good for you - I make no judgements about you or assumptions about what that might mean. Our "realities" are different and it's nice how one size doesn't fit all.
...but my word - your intuition and foresight is quite outstanding. Imagine.. 8 years of learning how to trade properly (or so I thought)... and then in an instant you have seen that my account is going to blow up because I don't understand 'trading psychology' and all the other associated issues in my trading I am loathe to address... Wow, I can't believe I missed that all along... I've been really stupid.. Gee I might have to rethink everything now and start all over again... lucky there are people like you out there who can spot such problems SO QUICKLY.. you might have just saved me....from myself...but most importantly I'll have to try harder so that my "stops are belong" in the right place - do you need a special kind of "psychology" for that?
"Good methodologies can rarely be programmed correctly"
? --- I dont believe there are very many good methodologies that is why eas don't always work. Only 5% or less of traders make it. So, as far as I am concerned manual versus mechanical, there is no difference. In fact, I would say there are probably more mql's running making money than manual because the market can be monitored a lot closer and can be picked easier. I don't think anyone wants to get up at 3:30 am to trade. Brutal. I would never dream of putting in a manual trade. I probably have more mm developed , patience, market awareness in my ea than anything I could ever work with manually. Just my opinion.
You might be right about more money being made by mql's in a daily basis (I wouldn't know), but I suppose my message is more about the skills and experience required to becoming a life-long profitable trader than what occurs on a short term daily basis - so I am not disagreeing with you as such, because what works for me probably wont work for you, but just pointing out that I am coming from a different angle. However I still maintain that the attributes of a robust trading methodology that would see profitability this year, next, the year after, and so on - are unlikely to ever be acquired through use of an 'trading robot.' Thanks again, and all the best.
What concerns me is that you shrug it off and novice traders (after all this IS the rookie forum) follow your assumptions and trade off into oblivion.
You might want to keep such things in mind before you go making blanket statements about whats important in trading.
You will see from my original post that I do not disregard 'trading psychology' completely, though stand by all previous comments that is it's most commonly understood forms is indeed over-rated, and potentially damaging. (eg "It should be far more simple etc..") My "reality" is I have found little place for it amongst factors that determined my consistent profitability - not because I am a robot and it just comes naturally to me, but the method that I am comfortable with came into being due to a clear focus on practical learning and on process - the stuff that is real and tangible to me.
My mind is open to the possibility that we are talking about 'a chicken or egg' scenario here - eg a basic form of 'good psychology' might drive one's endeavours to some extent in the hard work of developing a robust trading methodology - but my view is that rookies might benefit from a different view about trading to what we commonly see littered all over the place, from people who in all likelihood are talking out of their arses, rather than talking from real world, practical experiences about the tangible process of becoming consistently profitable traders with a sustainable methodology - so we end up with rediculous statements such as
"Successfull trading is 99% psychology.." UTTER BULLSHIT
(my bullshit, that is). Again, my real world experience is that I have seen people's trading suffer even more than it should because they believed statements like that - trying to improve trading outcomes by focussing on the benefits of 'trading psychology' - "Diligently sticking to your plan" (when the plan is fundamentally flawed) and believing that "most systems will work, if not just for the mindset of the nut behind the keyboard," (again, complete and utter bullshit) This is the stuff of trading psychology that I see do more harm than good, and there is much more like it I could go on about, but can't be bothered here and now..
While I respect Darkstar's views on psychology as being different to mine, I do strongly disagree that rookies might "follow my assumptions and trade off into oblivion" - on the contrary - I see very little risk of that in my thread! To me Darkstar actually described the very risks of trading psychology in a nutshell: "following assumptions and trading off into oblivion..." My banter is about method, process, analysis, learning, hard work, questioning your assumptions, understanding method capability etc. I see this as the stuff that is real, tangible and valuable, and where rookies should be placing their focus, so as not to delude themselves into thinking that "with the right psychology..." <and a half-arse system> "...I will magically be a good trader"
Anyway, I appreciate it the constructive comments from others, and I have enjoyed our little debate here. Hopefully others gain can something from it one way or another.
If indeed that is what the trading psychology principles being advocated on the forum have degenerated into, then you are 100% correct. Psychology itself will do nothing for a trader without a profitable system to use it on. I would argue that without it, even a highly profitable system will produce nothing but losses, but that isn't really what your talking about. Sorry for the misunderstanding.
Maybe its time for a new epic post on what trading psychology is REALLY about.
I have 2 friends that are farmers. They were working for years and were able to maintain good livelihood. After time , crop that was grew by one of my friend found broad industrial usage. Price doubled in couple of month and he become rich authority that was considered to be smarter and more hard working than rest of his peers. Meanwhile my second friend close down business and got job at the farm of first one. Does it mean he was not working hard ? Or is it really just luck? Maybe Gordon Gecko was just lucky
In trading it is not different. If you take 100 people to work on developing of the method, do u think that if they all put the same amount of hard work they all will succeed ? I dont think so. If u are saying there is no place for luck, so what is it? Why some people get it done and some don't? Uve started great topic but I would really need to know what is it that makes people succeed and failed.
Well, I believe that, as u stated in your first post, one has to develop his own approach to the market or try to understand why is market doing what it is doing. But, well it is not enough and Im not sure if it is even possible. It is like if u want to become a doctor but u dont have anybody to show u what u are doing good or wrong and u are just reading books. As a trader u are on your own (at least most of the people that dont know experienced traders) u dont have anybody to tell u what to do, and if somebody does it is most often very experience "advice" by fx course sellers.
To me, psychology and discipline is not an issue. I have lost 5000EUR in the most disciplined way just by following my stupid , backtested and 1000 verified rules. And if I was even more disciplined I would blown my account till this time. Well Im trading just 2-3 contract, but when u are trading 50lots I believe it is emotionally exhausting and it doesn't matter if your system was working for 5 years already.
- For as long as you believe luck plays a part in trading success it is less likely that you will develop the capability to achieve that success ("finding" success is also not relevant)
- You have lost money trading live, and in a 'disciplined' way, by following a system from a backtest (that presumably worked?) with many rules. This is a very common story, and indeed a frustrating one. In my humble opinion, backtesting does offer some value, but just a fraction of the value of forward testing in DEMO mode, and then in LIVE mode. My forward testing in DEMO mode (with a 100k demo account, not 10k or 1k) actually is ongoing, but is usually 3 months before I add in an additional element to my method. If you are loosing money trading live (unless knowing the capability of that system tells you to expect some defined time in drawdown as being acceptable) then you should stop trading! And go back a step or two.
- Are you really working within a process that aims to develop your skills and capabilities as a trader, or are you expecting to "find the right system?" (by luck, for example..)
To quote from your other thread,
"I will reserve final judgement for later (ie when trading the Lite 'method') and look forward to posting a fair and honest review at the right time, but the goal is to prove the basic method by trading $1 'Lite' pips until the complete course has been paid for, should I chose to do it later... should be a fun challenge I have set myself anyway.."
Just curious if you proceeded with this and would be willing to express some thoughts if you have?
It is a method, not a system - principally because learning is built into the programme, both in terms of having to complete homework, and have it graded, and also because studying the method will probably force you to make some adaptations based on your own trading profile.. The former helping with the short term learning, and the latter helping with the longer term sustainability of the method for the individual trader, in my opinion.
The set-ups taught are quite clear, (though not "easy" I would say) so it can be traded "out of the box," if you are prepared to do the neccessary work and understand and practice what constitues a good set-up, and what does not. Although the course I took was LITE, it was actually far from "Lite" in my opinion, and I see this as one of the strengths. This is NOT for lazy system-hoppers.
The cost is relatively small (a few hundred dollars) and the value for money is EXCELLENT, given the support and feedback loop available to students - if you want to make use of it
The 'teacher', Eusabio, was excellent - very patient and very willing to assist. I have the feeling the teachers are traders for real, because not only do they run the courses outside of market open hours, but also because of the market insights in terms of practical matters like them telling you what market, timeframes, and times they preferred to trade and why..
I expect that anyone who wanted to get serious about using this method, as their principle source of trading income, would want to take the standard course, which I am told would expect to approx double your profitability (though I cannot independently verfiy this) and I think the outlay here would be a few thousand dollars - but given the support and feedback loop available for the Lite course, I would expect the value for money to be better than most other courses around, despite the relatively high cost... I have no plans to take the standard course at this stage, because I still want my existing trading to remain as my majority income, but supported by MAX ticking away on daily timeframes in the background (partly for fun, partly for profit - it is nice to not need profitability from this, and I suspect I will therefore continue to do quite well with it)
The fact that people have tried to produce EA's to run the method and failed (so I am told, again cannot verifiy this) is a VERY positive sign for me... yes, there is lots of thinking, and some discretion (though within defined parameters) and I am not surprised it can only be traded manually.
The not so good?
The free intro seminar was quite interesting but was indeed a big sell job (not surprisingly.. and fair enough I suppose, there is someone running a business here..) I could be mistaken, but I don't remember seeing one single loosing trade in the context of examples shown in this intro seminar - I was skeptical of this because my statement of "risk is everything" means I want to see what a loss looks like before I see what a winner looks like.. my impression after taking the course and running some demo trades (just me, it would vary greater between traders) is that you might expect around 70% winning or breakeven trades, meaning around 20-30% losses, and I saw a distinct absense of what the 20-30% might look like..
This however, was then covered in the course - fine for most - though once again, being a stickler for risk management I would have liked to have a seen a bit more time on the loosing scenarios - but this is just me, and I am somewhat risk obsessed after all; and thankfully quite capable of developing this understanding myself.
I am also not sure that the scenarios covered about potential profits from this method (x% per day = x% per week, month, etc) would be realistic for most traders (most, not all) but I should be careful with my comments here as I only did the Lite course and have not seen the standard and advanced courses.. even though I could say that the method should be profitable... if you are prepared to do the work...
Once again, lazy system hoppers who think they can be successful through buying a "system" will likely NOT succeed with this method - it takes practice, practice, practice..as with anything in trading
This method is principally about exploiting a trend, so what about a 'non-trending market?' The method does not aim to pick turning points, but looks at the the establishment of the trend and pullbacks, so it is not bullet proof by any means, but the methodology is sound - pick your markets, and pick your timeframes...and be patient
The Lite course was exceptional value for money and one of the only courses I have seen that really does provide support and guideance, aside from the actual "teaching" component. There is nothing 'revolutionary' about what I learnt (for me) though I have 8 years trading experience, and would guess that for novice or struggling traders it may be quite a different different story. The method is based on sound logic (identifying and exploiting the trend) and allows for customisation based on the profile of the trader, though the set-ups taught are quite structured. If I wanted to principally be a 'trend trader' then this is what I would want trade - though as mentioned above I am looking for secondary income only.
I am trading it on demo, daily timeframes, and so far so good. I learnt about the method with 15 minute timeframes (on pairs of my choice) in the class situation and in the homework, but I am more comfortable and confident in the longer timeframes (again, just me).
- I cannot say "yes it is profitable," but I can say "yes I am profitable using this method so far in demo mode." I am in no hurry to go live with this, as per comments above, but all going well will probably do so in another few months.
If you didn't have a reasonable amount of trading experience before doing the course then I would suggest at least being familiar with the main features of the MT4 platform and some basic elements of 'trending markets'
A logical way to do it would be Lite course first, standard course second (I think they might credit Lite fees off the cost of standard course but you would need to check that with the MAX folk)
Is it worth doing this course in my opinion? Absolutely yes.
Hope that helps.. sorry, a VERY looong answer, but I don't think it is fair to review something like this and be brief!
Thanks Hedgehog for your thorough and informative reply.
It seems to have the same intent as the methodology that I pursue, that is, identify the trend then swing trade it for as long as it lasts. The intention being, to look for quality of trades rather than quantity of trades by patiently waiting for the right trending conditions. I then prefer to use simple and classic support and resistance concepts in identifying entry areas within the trend. It seems that the more I trade, the more I tend to refine my methodology towards simplicity with the overall mantra of "patience and discipline".
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