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Good morning
An edge ... a good succinct explanation for newcomers is contained here:

The Importance of Defining Your Trading Edge: Find Your Strategy

A trading edge defines your technical or strategic advantage in the highly competitive market environment.
www.investopedia.com

Those new to trading/investing shouldn't be too concerned straight up about what their edge is.... at some stage very soon in the game someone upstairs will hit you over the head with a lump of 4 b 2 and then all of a sudden, the penny will drop ha ha ha ha ha ha
resilience extraordinaire ... ha ha ha ; and; one gets to realise why some make good profits whilst others do not. For mine therein lies the key to establishing your neech / edge.

Interesting stuff really.

For mine, 100% true that, certainly an essential in a traders/investors tool kit. Top shelf stuff. How to get there is the challenge that awaits us all.

Have a very nice day, today.

Kind regards
rcw1
 
What can you bring to the table that gives you the very best in strategy to define you as a trader/investor over an above what others do, day in day out, in good times and in bad !!

Kind regards
rcw1
 
All this talk about 'edge' can be hard for people new to trading to understand, like trying to look through murky water. Understand that there is really two parts to this, firstly the edge that the trader has, and secondly the degree by which the trader is able to exploit that edge. Hope is gives a bit more food for thought to new traders.
 
rcw1 said:
What can you bring to the table that gives you the very best in strategy to define you as a trader/investor over an above what others do, day in day out, in good times and in bad !!

Kind regards
rcw1
Click to expand...

The Importance of Defining Your Trading Edge: Find Your Strategy

A trading edge defines your technical or strategic advantage in the highly competitive market environment.
www.investopedia.com

Has the (WTT) turnkey strategy lost its edge?
@rcw1, that article was a great read. The article suggests that the effectiveness of a particular trading strategy may decrease as more and more traders adopt it. This is because increased participation can eliminate the edge that made the strategy successful in the first place.

There was one paragraph in that article that raises a question. Thinking about the number of traders using the same Turnkey WTT strategy sold by (The Chartist) - the question is: "Has a good strategy stopped working"?



The WTT turnkey strategy trading results have been pulled from Twitter
These are the actual results of trading the "Weekend Trend Trader" (WTT) turnkey strategy traded on the ASX over the last two years.

# I'll be interested in seeing what the "June 2023" results will be.

Looking at the results below - it raises the question:
"Has the WTT Strategy lost its edge"?



Or @Nick Radge might update his official website
I apologise for the quality of the capture below, it's been "directly lifted" from the official website.

# The WTT results have only been updated until the end of March 2023 which is frankly not good enough.



My request
I would appreciate it if others who trade the "WTT turnkey strategy" would post their actual "two-year" monthly results for comparison.

Skate.
 
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I had what I thought was a bulltproof edge trading small and microcap ASX. The back and forward tests over about 15 years of data was as close to a 45 degree straight line as you can get. When covid hit, the equity curve changed into a flat horizontal line and it has not recovered since. That shocked me, because I believed it was based upon what I mentioned above - human behaviour patterns. Either retail traders or the banks changed their behaviour, and my edge eroded completely. It meant my assessment of such behaviour wasn't as fundamental as I'd first thought. I started looking for ways to determine when the crowd's behaviour is correct, and when it's incorrect. A big green candle with high volume indicates crowd behaviour, and crowds are far more predictable than individuals. A big green candle can be a signal to go with the crowd or against it, depending on how the volumes are transacted. Same applies to a big red candle - sometimes the crowd is right (it continues to fall), and sometimes it's wrong (it prints a major low and shoots upwards).

Edge erosion is an interesting topic. Obviously if a decent edge exists, it's going to be discovered and exploited as much as possible by those who discover it. The more it's exploited, the smaller the edge becomes, ie. it's self-limiting. It makes me think there are no holy grail approaches to trading, but like any rule, there's always exceptions. eg. Jim Simons, who proves the impossible is in fact possible. Is it just that he's super smart, or is there another factor at play? To what degree does the mental game influence outcomes, and if it does have an influence, what is that mechanism?

I think real edges will always persist, but they won't necessarily persist through changes in market regime or through our usual trading timeframes. It may be that any system we use will require us to occasionally change TFs or adjust profit/stop levels.
 
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Gringotts Bank said:
Edge erosion is an interesting topic.
Click to expand...

@Gringotts Bank, "edge erosion" is an interesting topic. As I mentioned in my previous post a trading strategy may decrease as more and more traders trade the same strategy.

The article @DaveTrade linked to, on the other hand, argues that even if a strategy loses its edge, the "skills and techniques" learned from that approach can be used as building blocks for more "effective trading techniques". Those building blocks can preserve or restore the edge of the strategy over time. As a result, even if a strategy has lost its edge, traders may gain from continuing to study and improve their skills from the methodology of that strategy.

Skate.
 


The sheep spend their whole lives fearing the wolf
The quote is often used in trading as a metaphor for how traders can be so focused on the risks of the market that they forget about the risks of their own actions.

Skate.
 
Tomorrow's post
As I pondered on what to post about tomorrow, the idea of writing about "Seeking out-performance" when trading suddenly popped into my head.

However, it cannot be denied that trading also comes with risks and hazards as the market can be highly volatile, and even the most seasoned traders are not immune to losses. This is why it is crucial to "prioritise performance" when trading.

A high level of trading performance requires a combination of knowledge, discipline, a bloody good trading plan, and a great trading strategy. Risk management is essential for trading success and never ever trade with money that you can't afford to lose. Most traders hear this warning but it rarely sinks in.

The markets are always changing, and so should you "as this is the key to improvement". Most of all you need to maintain your curiosity and seek out fresh information and strategies. When trading, emotions can run high, so it's essential that you stay disciplined and adhere to your trading plan, no matter what.

Tomorrow's post will be definitely about "Seeking out-performance" where I'll have more to say.

Skate.
 
So 3 submissions on trading edges:

1.



Poor advice. Thinking about your edge is the single most important thing that you can do prior to trading real money.

2.



Agree. Not all edges are available. Example: arbitrage is a 100% edge. When available (rarely to never) you should bet 100% of your account. Then there are 'versions' of this: risk arbitrage, provide the mathematical calculation of return, but retain the uncertainty of that return.

3.



This is a very interesting post.

I would be fascinated to know the 'human behaviour' that was identified. This suggests that fundamental behaviours that are probably hardwired into our systems through genetics and/or nurture, can be modified. I'm a big reader of Kahneman & Tversky, so if you are inclined to share your previous edge or observed behaviour...?

I have issues with 'volume'. Volume measures the # of transactions. Yes, interesting, yes usually important. However, I trade $100K in 1 transaction with 5 other mates each also trading $100K long on day 1, you trade short $1B on day 2. The price moves in your favour against volume.

The issue (which makes it a poor edge) is that it is dependant upon 'prediction'. You again are relying on past data to predict future data. Not an edge.

Erosion happens all of the time. Tax selling, rebuying January, Dogs of the Dow, painting the tape end of Quarter, being added to the index and seasonality are 5 examples of erosion of a strategy (they were never an edge).

Daytrader strategies include bracketing the open, 10am reversal, buy the close, sell the open ( a fff favourite) etc.

My firm runs a number of 0DTE strategies:



A rival firm posted it on the internets! Obviously it does not work so well now.

The point is: none of these are an edge. They are all strategies. Strategies can be eroded through competition. An edge is immutable.

jog on
duc
 
Good morning

Poor advice. Thinking about your edge is the single most important thing that you can do prior to trading real money.

Disagree.
Would consider the identification of who you are first... A trader, an investor, and what type of trader and investor you want to become researching and watching closely what the market is doing ... 'Listening'. Then how to execute.

To be clear on this one, there is no way in Australia would rcw1 had defined an edge without first understanding the market and which way wanted to trade the market, otherwise, the cart before the horse...

Kind regards
rcw1
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

54. Seeking out-performance
To achieve performance in trading, you must have a well-defined trading plan as well as a well-designed and thoroughly tested trading strategy that considers your risk tolerance, and market conditions. This necessitates a rigorous risk management approach as well as a readiness to react to changing circumstances.

Focusing on your trading method can boost your chances of creating higher long-term profits by detecting emerging trends. This requires a deep awareness of market dynamics as well as the desire to conduct research and analysis in creating a rules-based trading system.

Cutting losses fast and safeguarding trading funds can help traders free up capital for new positions with higher profit potential.

The market is constantly shifting, providing fresh opportunities to make money. However, it's important to ensure that funds remain accessible and not tied up in underperforming positions that are unlikely to produce sizable returns over the long run.

I believe that a "smart wimp" who flees and hides when things get tough, typically achieves better outcomes than a trader who takes pride in their "capacity to endure severe financial pain" while hoping for a position or the markets to turn around.

In terms of the idea of a "smart wimp" versus a persistent trader, it's important to recognise that each trader's approach may vary. While some traders may be unduly stubborn or unwilling to modify their course in spite of contradicting facts, this is not necessarily a characteristic of all bold or persistent traders.

While it's important to remain persistent and determined in sticking to the strategy, it's equally important to be objective and cut losses fast when necessary. This can be more effective than holding onto a losing position in hopes of a turnaround.

Creating a range of trading strategies is another alternative to seeking out additional performance. You can minimise your overall risk and raise your chances of achieving consistent returns over time by trading a number of portfolios, only if funds allow. Trading multiple strategies requires a balanced approach to risk management as well as a willingness to be flexible when market conditions change.

It's also critical to maintain a positive attitude and be willing to learn from your losses. You can become a better trader by recognising losses as a regular part of the trading process and using them as learning opportunities. Having the desire to be flexible and adaptive, to make changes to your approach depending on market input.

In addition, it is critical to maintain a long-term view and focus on your overall trading objectives. By remaining disciplined and focused on your goals, you may avoid being swayed by short-term changes and make decisions that are consistent with your overall approach.

Pursuing success in trading requires a rigours approach to risk management, a positive mindset, and a willingness to learn from your losses. You may boost your chances of generating consistent profits and establishing financial stability over time by maintaining focus on your long-term goals and responding to changing market conditions.

In summary, cutting losses fast and safeguarding trading funds are crucial in achieving long-term outperformance. By having a well-defined risk management strategy, staying disciplined, and being adaptable to changing market conditions, traders can increase their chances of generating consistent returns and achieving financial security over time.

Skate.
 
ducati916 said:
I would be fascinated to know the 'human behaviour' that was identified.
Click to expand...

Identifying human behaviour
I'm sure @ducati916 responses were designed to garner further comments that allow further input.

As the daily series of posts are directed to new traders the responses from, @rcw1, @Gringotts Bank, @DaveTrade, @peter2 and @qldfrog gave their thoughts on what constitutes an edge. To summarise, any trading method that allows a trader to make consistent profits from trading could be considered an edge.

Beginners or new traders should be able to grasp by now that the share market is more than simply a collection of figures and charts, it is also a reflection of human behaviour. The actions and beliefs of investors, traders, and other market participants drive the market.

When traders have a high conviction that a company will increase in value, they will buy shares in that company, increasing demand and driving up prices. When traders have unfavourable expectations, they may sell shares, reducing demand and driving prices down. That's trading in a nutshell or human behaviour in action.

As a trader, you must be aware of both fundamental and technical aspects that might influence the market and particular individual positions. Understanding how human behaviour influences market movements allows you to make better trading decisions and potentially profit from market trends.

As there is continual chatter in the (FMG) thread I'll use that company for my examples in the next post. I'll upload a few screen captures of (ASX:FMG) to show "human behaviour in action". Basically, without descriptions, you should be able to see the daily and weekly buying and selling pressures in two different formats.

Also, the "Percentage Up" charts show the percentage of companies in the "ASX:XAO" that are advancing, which is critical to generate buy signals of the new project, the SAP Strategy.

Skate.
 
ducati916 said:
The point is: none of these are an edge. They are all strategies. Strategies can be eroded through competition. An edge is immutable.
Click to expand...
@ducati916 the type of edge that you seem to be referring to is the edge that is built into the instrument that you're trading, these don't change unless they change the way the instrument works. I have found some of these in my journey learning options. I want to put to you the idea that a trader can have a statistical edge if the conditions that the edge will work in are defined and the strategy that exploits the edge is only used when those conditions are present.
 
ducati916 said:
I would be fascinated to know the 'human behaviour' that was identified.
Click to expand...

The chart below (FMG) shows the "daily" raw buying and selling pressure
Each bar is the "daily buying and selling pressure" denoted by two colours that need no explanation. Looking at each bar you can see the level of confidence held by the traders. When there is more buying than selling the share price goes up.




The chart below (FMG) shows the "weekly" raw buying and selling pressure
Each bar is the "daily buying and selling pressure" denoted by two colours that need no explanation. Looking at each bar you can see the level of confidence held by the traders. When there is more buying than selling the share price goes up.




The chart below (FMG) shows the "daily" buying and selling pressure - "Smoothed with Histogram"
Each bar is the "daily buying and selling pressure" with a smoothed histogram. Looking at each "daily bar" you can see the level of confidence held by the traders. When there is more buying than selling the share price goes up.




The chart below (FMG) shows the "weekly" buying and selling pressure - "Smoothed with Histogram"
Each bar is the "daily buying and selling pressure" with a smoothed histogram. Looking at each "weekly bar" you can see the level of confidence held by the traders. When there is more buying than selling the share price goes up.




The Ducati "Daily" Aqua Bar Strategy (FMG)
This strategy uses two colours that indicate "daily momentum". The premise is to buy "Aqua Bars" and sell the "Red Bars"




The Ducati "Weekly" Aqua Bar Strategy (FMG)
This strategy uses two colours that indicate "weekly momentum". The premise is to buy "Aqua Bars" and sell the "Red Bars"




The weekly "Percentage Up" Filter (XAO) before the markets opened today
Currently, before the market opens today, the "percentage up" filter is sitting at 56% which allows the "SAP Strategy" to generate "buy signals". The Percentage Up filter is simply a conditional buy filter.



Skate.
 


DaveTrade said:
2. I want to put to you the idea that a trader can have a statistical edge if the conditions that the edge will work in are defined and the strategy that exploits the edge is only used when those conditions are present.
Click to expand...


1. Yes. Correct. However (while that is/would be incredibly useful) the actual normative conditions of the market provide the edge that I am most interested in.

2. Which I will accept. In accepting that assertion, it rather begs the issue that a number of different edges can and must exist, [ if ] you are going to engage the market full time. Of course as retail traders, there is no necessity to do so. Just to be clear: I am not conflating edge with strategy here.

It has been asserted that markets change. Really? Or do only aspects of markets change? The difference is rather important. If you were to list all of the variables that constitute 'markets' and differentiate those that change and those that do not, the beginning of an immutable edge would become apparent.

3.



Agree. A range of strategies can provide an edge.

4.



Again this rather generic 'market conditions'. The devil is in the details. What...specifically has changed? Make a list of what can change and what does not or 'cannot'.

5.



True. Fear and greed are often discussed. Less discussed but more important is 'need'. The market [US] from 2009 until (late) 2021 was driven by 'need': ie. participants were pushed (far) out on the risk curve by the Fed. I'm not so much talking about retail, rather the big players, who were hungry for (risk) yield via stocks. Is that emotion still present?

6.


Then at the other end of the spectrum:



Whether you be investor, trader or candlestick maker, you will require an edge first and foremost. For without an edge, clearly defined and real, you have no business in the markets. Yes you may live for a while living 'lucky', but eventually luck runs dry.



jog on
duc
 
End-of-year results
Another year is done and dusted. As the year has come to a close today, it's time to look back at the financial results for 2022-2023. The "end-of-year" is normally a cause for celebration, and this year is no exception.

The results below provide insight into the year just finished, which will aid in setting goals for the next financial year. Here's hoping that 2023-2024 will be another profitable year!



Skate.
 
What was the % return?
 
Gringotts Bank said:
What was the % return?
Click to expand...

My 2022-2023 return was 21.875%
Returns in the world of trading this financial year were variable and unpredictable. In the instance of my 2022-2023 return, I began well and finished with a good 21.875% return. My euphoria, however, was short-lived, as I was slammed with a string of weekly losses around the end of January 2023.

This event emphasises the volatility and danger inherent in trading since even the most successful traders might meet unforeseen challenges. The red lines within the circle remind us that trading requires ongoing monitoring and agility. While losses are unavoidable, they also provide an opportunity to learn and improve future trading techniques.



Skate.
 
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