Technical Analysis in Isolation of all Speculation?

[Joe Blow]

Just a quick note that I have moved this thread to the Stock Market Nuts and Bolts forum as I think it's a little too advanced for the Beginner's Lounge forum.

 

[Boggo]

Can you please tell me how...if there is no edge in prediction....strict money management actually creates an edge from which TA makes money? I appreciate that, even with an edge, poor money management can blow away your portfolio. But without an edge, how do stops and breakeven etc actually create money?

This is not to say that analysis, per se, necessarily saves the day either in terms of generating an edge.

I "invest" in the StockDoctor Strong and Satisfactory (fundamentally) group of stocks, currently 479 stocks, using weekly buy and stop etc signals.
Good fundamental reports seem to provide that bit more support to the trend, it becomes more reliable.

Fundamentals alone on that group would probably still have me holding the likes of SUL whereas applying tech analysis allowed me to move out SUL and add to NHF as an example.

This is the backtest result of the current group based on the period (nearly 10 years) that I have been running this account. It is fairly close to the actual outcome but obviously a lot of stocks in that current would not have existed over that period and others would have come and gone.

The test results obviously do not take into account dividends based mainly on instalment warrants which I use on many stocks such as TLS etc..

Note on the result that number of losers greatly exceed the winners, its the size of the winners that matter.

The bottom chart is a pictorial example of the process on the weekly chart of BTT (which I am out of again).

System backtest (click to expand)

 

[cynic]

Can you please tell me how...if there is no edge in prediction....strict money management actually creates an edge from which TA makes money? I appreciate that, even with an edge, poor money management can blow away your portfolio. But without an edge, how do stops and breakeven etc actually create money?

This is not to say that analysis, per se, necessarily saves the day either in terms of generating an edge.

If you examine your post carefully you may notice that you've actually provided an answer to your own question.

"...even with an edge, poor money management can blow away your portfolio.."

Oftentimes when a portfolio is blown away by poor money management somebody else will usually benefit (i.e. profit) from that trader's losses!

 

[Wysiwyg]

This is the backtest result of the current group based on the period (nearly 10 years) that I have been running this account. It is fairly close to the actual outcome but obviously a lot of stocks in that current would not have existed over that period and others would have come and gone.

Improvement could be made with Interactive Brokers 0.08% flat rate per trade as opposed to the $33 per trade ($66 round trip) you allocated in the back test. Though I add more brokerage on my test runs to compensate for possible entry/exit slippage in present time. Yeah that survivorship bias is a biggy.

It’s called survivorship bias and it’s an idea that has its roots in World War II, when mathematician Abraham Wald helped steer the US Army Air Forces away from a potentially costly mistake.

Journalist and author David McRaney tells the story on his blog, You Are Not So Smart. The background: the USAAF was suffering huge losses of life and aircraft and was studying planes that had made it back to base for signs of how to better protect them.


Holes in US aircraft showed where they could take damage and still survive, rather than indicating where they needed more protection.Getty Images
“Over and over again, [the military] saw the bullet holes tended to accumulate along the wings, around the tail gunner, and down the centre of the body. Wings. Body. Tail gunner. Considering this information, where would you put the extra armour? Naturally, the commanders wanted to put the thicker protection where they could clearly see the most damage . . . But Wald said no, that would be precisely the wrong decision. Putting the armour there wouldn’t improve their chances at all,” McRaney writes.

“The holes showed where a bomber could be shot and still survive the flight home . . . Look at where the survivors are unharmed, [Wald] said, and that’s where these bombers are most vulnerable; that’s where the planes that didn’t make it back were hit.”

 

[DeepState]

I "invest" in the StockDoctor Strong and Satisfactory (fundamentally) group of stocks, currently 479 stocks, using weekly buy and stop etc signals.
Good fundamental reports seem to provide that bit more support to the trend, it becomes more reliable.

Fundamentals alone on that group would probably still have me holding the likes of SUL whereas applying tech analysis allowed me to move out SUL and add to NHF as an example.

This is the backtest result of the current group based on the period (nearly 10 years) that I have been running this account. It is fairly close to the actual outcome but obviously a lot of stocks in that current would not have existed over that period and others would have come and gone.

The test results obviously do not take into account dividends based mainly on instalment warrants which I use on many stocks such as TLS etc..

Note on the result that number of losers greatly exceed the winners, its the size of the winners that matter.

The bottom chart is a pictorial example of the process on the weekly chart of BTT (which I am out of again).

System backtest (click to expand)

Hi Boggo

Thanks for this. It is very thoughtful and there is much that I agree with in terms of underlying rationale.

This is what I see in the results you have provided:

+ There is a database of stocks which have been used. Due to data restrictions, these will inevitably result in survivorship bias. From my experience (I was a money manager with world class tools and team that did this sort of thing), I know that this will be strong when the backtest period is this long. This will materially skew results into stocks that have done well. Stocks that have done well will have an inherent trend within them.

+ You have chosen a stock screen to aid in directional positioning. But you seem to trade intraday where fundamentals just can't assist materially.

+ Your backtest included stops etc. I can see from the stats you have provided that there is a deep skew in outcomes which suggests to me you are using some form of grail or pyramid type strategy with possibly a trailing stop in place. In essence you are purchasing a type of synthetic option in a generally rising market. It will deliver you an above cash return if you happen to be in an able to pick direction. Given the database is skewed to high trend, this is not an adequate test of predictive power. Random selection would also do quite well.

+ In the presence of in-built trend, it ought not be surprising that profitability is positive for the strategy employed.

+ You have limited losses via some sort of stop and this limits losses for an individual trade. It can be applied to other levels too. For a diversified investor, a stop should, for example, be placed at the overall portfolio level rather than at the level of individual stocks for the most part. Insuring each position is actually over-insuring as it does not allow for diversification benefits which are inherent.

+ I cannot tell how much of the profit you are showing comes from inherent trend due to survivorship bias (it would be large), fundamental screening and, separate to all of these, TA overlay. This would not be achievable from the backtest engine you seem to be using.

My question remains as to whether the TA part actually adds value if you don't have a the ability to be directionally accurate. I think you are trying to explain that the strategy worked which included TA. But, despite the issues I have raised above, suggests that directional prediction remains necessary for TA to be useful.

If you are able to pick trends then all sorts of aggressive strategies would work. Or even buy-hold. But they are all conditional on picking direction. Yet, some seem to believe that risk management is all that is necessary to succeed. As I mentioned, I don't believe that risk management alone makes you money. It actually can't. So it puzzles me why some people believe this.

In terms of risk management though, it is not that it is useless. Far from it. When trading with an edge, you have to be alive to see your edge play out. But the edge is what creates profit expectation. Risk management provides a surer way to get there. If you have a high chance of blowing yourself up, the expected return for a given strength of edge declines as you need to 'pay' for insurance in the form of deep-OTM-Puts (or their synthetic equivalent) or otherwise bear the cost of potential ruin. At the extreme, just to make this point, super-tight risk management will just earn you the cash return. 'Riskless'. It doesn't make you money without an edge - does it?

 

[DeepState]

If you examine your post carefully you may notice that you've actually provided an answer to your own question.

"...even with an edge, poor money management can blow away your portfolio.."

Oftentimes when a portfolio is blown away by poor money management somebody else will usually benefit (i.e. profit) from that trader's losses!

Hi Cynic

Sorry to hear you're having a tough trot. Nil all each day.

I totally agree that bad money management decreases profit expectation in the presence of an edge. However, that's not the situation I'm querying about.

How does risk management actually add value without an edge? Some TA commentators who people on ASF seem to regard highly will claim that, even though they have no directional predictive ability, returns can be generated via various TA methods to 'bend the distribution'. This seems implausible.

I know you trade options. Certain types of options (with OTC style payoff structures which may include escalators etc) have similar payoffs to grail type strategies, for example. If I have no idea which direction the market will go in at all, simply purchasing a call will do nothing for me over time than deliver me a cash return. Same with a put...in bought or written positions. Skews/Smirks for the relevant maturity are priced in. In option land, you have more variables to think of than in linear land, but I'm sure you see this analogy given your experience with this stuff.

Ignoring predictions in the other Greeks except for delta (given we are really talking about linear instruments in the end), you can't make money in options without directional accuracy. If you can't make money in options without directional accuracy, you can't make money bending distributions either without directional accuracy. Every conceivable TA strategy can be housed in OTC options and are able to be hedged given they are able to be implemented in a TA strategy.

If you wish, you can relax my restriction on the other Greeks. It still leads to the same conclusion. If you can't forecast direction, or other relevant variables which are relevant to option pricing, you get no profit in the wash up.

 

[Boggo]

Hi DeepState.

You certainly seem to have a much better analytical approach to the process that what I have. Mine is to simply find an entry point on (apparently) better than average stocks from a fundamental perspective.
In some cases I have no knowledge of the background etc of the stock, I will have a look to see the latest news and if and when it pays a dividend.

There are many issues with the backtesting process, the case of the biggest winner JIN being where I held less than it assumed and in the case of the backtest another being NEA where I held more than it assumed. I apply more of a discretionary approach to each, the average overall outcome is fairly similiar though.
The backtest doesn't pyramid amount held but does pyramid base finds and increases the amount available for each stock proportionally.
Those are probably the negatives that may erode the results a bit.

The positives that more than make up for it are items such as pyramiding existing positions (NHF currently) and TLS as one example where I have never held the stock but have made profit from both the instalment warrants and the dividends, an approximate average 2.4 times the dividend per share instead of just 1x if I held the underlying TLS share.
(TLSIOM will be off loaded tomorrow or the next day for a profit after it has earned quite a bit in dividends, it expires on 23rd)

The discretionary factor is an advantage too where it takes less than a minute to exit a stalling uptrend and either fund a new or add to an existing position.

Apart from the relatively minor discrepancies as mentioned, looking at the individual trades that are in the results gives me confidence to continue the same process of a combination of fundamental support to a technical process.

Cheers

 

[cynic]

Hi Cynic

Sorry to hear you're having a tough trot. Nil all each day.

I totally agree that bad money management decreases profit expectation in the presence of an edge. However, that's not the situation I'm querying about.

How does risk management actually add value without an edge? Some TA commentators who people on ASF seem to regard highly will claim that, even though they have no directional predictive ability, returns can be generated via various TA methods to 'bend the distribution'. This seems implausible.

I know you trade options. Certain types of options (with OTC style payoff structures which may include escalators etc) have similar payoffs to grail type strategies, for example. If I have no idea which direction the market will go in at all, simply purchasing a call will do nothing for me over time than deliver me a cash return. Same with a put...in bought or written positions. Skews/Smirks for the relevant maturity are priced in. In option land, you have more variables to think of than in linear land, but I'm sure you see this analogy given your experience with this stuff.

Ignoring predictions in the other Greeks except for delta (given we are really talking about linear instruments in the end), you can't make money in options without directional accuracy. If you can't make money in options without directional accuracy, you can't make money bending distributions either without directional accuracy. Every conceivable TA strategy can be housed in OTC options and are able to be hedged given they are able to be implemented in a TA strategy.

If you wish, you can relax my restriction on the other Greeks. It still leads to the same conclusion. If you can't forecast direction, or other relevant variables which are relevant to option pricing, you get no profit in the wash up.

Thanks for your reply RY.

Again your theories are at variance to my actual experience of trading the financial markets.

I do minimal directional analysis in my trading. I could just as easily dispense with the directional analysis altogether and still maintain a (reduced) level of positive expectancy!

Whilst some may achieve an edge via directional prediction it is by no means the only way to trade profitably!

Edit: I am of the opinion that some traders give the market way too much credit for adherence to mathematical theory. Many of these theories fail far to often for such faith to be justifiable.

 

[Ves]

My understanding was that the initial question was this, paraphrased into my own words:

(RY can confirm)

Can technical analysis be profitable without having an analysis edge and instead relying on risk management practices as the sole source of profitability?

We seem to be confusing terms here. So the important terms are:

Technical analysis
Edge (lack of)
Risk management

Cynic, you are now talking about, what I assume (sorry your posts are not clear to me at all in this thread) are neutral or non-directional options strategies. Which I assume are based more on the assessment of volatility, and other measurements such as this, rather than taking advantage of the probability that the market price will move in your favor. In other words you gain advantage because you can price risk better than other participants in the options market.

If I have this bit of understanding correct, I would suggest two things: this probably infers firstly that you are not practicing technical analysis (most definitions that I can find suggest that it is the analysis of price direction or price action) which would mean that it is not relevant to the initial question and secondly that despite having sound risk management (well, don't you?) your source of success (should you have any) would be more reliant on your expertise (ie. you have an edge) in assessing the options data and making decisions upon this analysis, rather than profitability arising from risk management and only risk management.

It might be easier if RY and yourself defined the terms that you are using much more clearly, so it is easier for you to communicate and definitely easier for RY and yourself to be held accountable.

 

[cynic]

Can you please tell me how...if there is no edge in prediction....strict money management actually creates an edge from which TA makes money? I appreciate that, even with an edge, poor money management can blow away your portfolio. But without an edge, how do stops and breakeven etc actually create money?

This is not to say that analysis, per se, necessarily saves the day either in terms of generating an edge.

If you examine your post carefully you may notice that you've actually provided an answer to your own question.

"...even with an edge, poor money management can blow away your portfolio.."

Oftentimes when a portfolio is blown away by poor money management somebody else will usually benefit (i.e. profit) from that trader's losses!

Thanks for your reply RY.

Again your theories are at variance to my actual experience of trading the financial markets.

I do minimal directional analysis in my trading. I could just as easily dispense with the directional analysis altogether and still maintain a (reduced) level of positive expectancy!

Whilst some may achieve an edge via directional prediction it is by no means the only way to trade profitably!

Edit: I am of the opinion that some traders give the market way too much credit for adherence to mathematical theory. Many of these theories fail far to often for such faith to be justifiable.

My understanding was that the initial question was this, paraphrased into my own words:

(RY can confirm)



We seem to be confusing terms here. So the important terms are:

Technical analysis
Edge (lack of)
Risk management

Cynic, you are now talking about, what I assume (sorry your posts are not clear to me at all in this thread) are neutral or non-directional options strategies. Which I assume are based more on the assessment of volatility, and other measurements such as this, rather than taking advantage of the probability that the market price will move in your favor. In other words you gain advantage because you can price risk better than other participants in the options market.

If I have this bit of understanding correct, I would suggest two things: this probably infers firstly that you are not practicing technical analysis (most definitions that I can find suggest that it is the analysis of price direction or price action) which would mean that it is not relevant to the initial question and secondly that despite having sound risk management (well, don't you?) your source of success (should you have any) would be more reliant on your expertise (ie. you have an edge) in assessing the options data and making decisions upon this analysis, rather than profitability arising from risk management and only risk management.

It might be easier if RY and yourself defined the terms that you are using much more clearly, so it is easier for you to communicate and definitely easier for RY and yourself to be held accountable.

Ves,

It seems I may have overlooked RY's reference to T/A in the question to which I was originally responding.
The point that I believed myself to be confirming was that risk management alone can confer an edge for the simple reason that those deficient in such practice usually end up donating much of their trading capital to the more disciplined market participants.

However, I certainly agree that there is a clear distinction between the concepts of risk management and T/A.

As for options strategies, many of them are deployed pursuant to directional analysis of the components from which their pricing typically derives, whether that be analysis of the price direction of the underlying, volatility interest rates etc...

(I could say something further here but I do not wish to surrender my edge.)

 

[DeepState]

1. Again your theories are at variance to my actual experience of trading the financial markets.

I do minimal directional analysis in my trading. I could just as easily dispense with the directional analysis altogether and still maintain a (reduced) level of positive expectancy!

As for options strategies, many of them are deployed pursuant to directional analysis of the components from which their pricing typically derives, whether that be analysis of the price direction of the underlying, volatility interest rates etc...

(I could say something further here but I do not wish to surrender my edge.)

2. Whilst some may achieve an edge via directional prediction it is by no means the only way to trade profitably!

3. Edit: I am of the opinion that some traders give the market way too much credit for adherence to mathematical theory. Many of these theories fail far to often for such faith to be justifiable.

4. risk management alone can confer an edge for the simple reason that those deficient in such practice usually end up donating much of their trading capital to the more disciplined market participants

Hi Cynic

Thanks for pursuing the thread.

1. If your experience is at variance with these theories there are the following possibilities:
a) you have experienced a positive idiosyncratic variance (that's a nice way of saying you were just lucky)
b) you actually do have predictive power which generates an edge
c) the mental model which I am bringing to the 'table' is wrong.

I believe that the mental model I have brought to the table is correct and have asked how profit is achievable without edge. I am also interested to know why people believe bending distributions somehow generates returns. In my understanding of the way the world works, it cannot. If it did, it would require the equivalent of financial alchemy. Two TA traders bending distributions in opposing directions without edge cannot, in sum, make money. But, if is believed that bending distributions does generate an edge, this is only possible in some sort of weird situation where money gets created and handed to both TA traders. This is clearly lunacy.

2. Whilst you may not be a directional player, there are indeed other ways to make money. I was referring to an edge in prediction. I did not specify it had to be directional in my first question on this thread and suggested you could relax the sources of prediction axes in the options discussion to include all Greeks. It need not be directional (delta). As you have alluded to in your response, you believe there is an edge in your identification of options positions. I used to trade Gamma. I know what you mean about non-directional edge. This involved virtually no directional prediction in a long term sense. It involved an edge in other parts of the components of option pricing.

I suspect that the reason why your experience is at variance is because you may possess an edge there. Treasure it. Protect it. Risk management helps you preserve it and maximize your chances of extracting it from the market. Risk management is not actually making you money.

3. I certainly agree that some quants take their models too literally and can come unstuck. In the Sub-prime and CDO meltdown in particular, the copula functions were found to be unstable. That blew a lot of balance sheets away. In 1987, the CPPI approaches that were so popular at the time, found the markets to be discontinuous as opposed to what was assumed. That said, there are many many more instances that I have witnessed and been a part of where models support decision making very successfully. For me, the amount of interest I show towards models requires a deep understanding of their underlying assumptions and questioning if they are fact or opinion.

In the obverse, I have seen a great many investors who eschew models entirely, completely impale themselves. Many of this camp have very inflated opinions of their own forecasting power and lack basis for their beliefs. That said, I have also led, been part of, spent time with, interviews, drank beer with...excellent investors who are less reliant on models. Many of these have gone on to become centi-millionares or deca-millionares..

At variance with what I observe on this site, out of the hundreds of investors I have worked...drank beer with, only 1 used technical methods to develop and maintain portfolios. Yet I find here a belief that TA-style risk management, via stops and other methods to increase expectancy dominates thinking and believes this activity alone generates returns.

This is not to say we did not risk manage. We did. But not in this way. We did not believe that risk management alone could generate returns. It just stopped us from blowing up before we could extract all we could. As the late Jack Brabham is quoted as saying (at least paraphrased) "To Finish first, you first need to finish".

4. Your assertion here, that bad risk management hands money to the rest of the market is only correct if you are trading with an edge. Taking excessive risk reduces your expected profitability but it remains positive. You could say that poor risk management reduces the amount of money taken from the rest of the market. It is not correct to say that poor risk management makes the rest of the market profitable because of your poor risk management.

In the situation where there is no edge, you are generating no expected profit so your bankruptcy does not deliver any expected return to the market. To make this clearer, let's say that you risk manage a stock position to lose at most $100. Keeping this still, if your wealth only equated to $100...your expected profit would still be zero. If your wealth was $1,000,000....representing a much tighter level of risk management, your expected profit would still be zero. In this situation, nothing is lost or gained by poor risk management. 'Excellent' risk management without an edge just keeps the trader in play for longer but does not increase their expected return and, ultimately, doesn't do anything to the expectancy for the rest of the market. This part relates to my response to 1. It is this area where I think all sorts of alchemy in TA-beliefs seems to develop from. These are just options with different strikes. Buy an option without an edge gives you cash. Zero edge leads to zero premium. Yet the belief by some is that curving the distribution somehow generates returns.

 

[Boggo]

(TLSIOM will be off loaded tomorrow or the next day for a profit after it has earned quite a bit in dividends, it expires on 23rd)

Just a one off follow up on this post and process.

Sold TLSIOM instalments and bought TLSIOZ. Exited all of KMD.
TGA has has indicated that it would like to be my friend soon.

 

[cynic]

Hi Cynic

Thanks for pursuing the thread.

1. If your experience is at variance with these theories there are the following possibilities:
a) you have experienced a positive idiosyncratic variance (that's a nice way of saying you were just lucky)
b) you actually do have predictive power which generates an edge
c) the mental model which I am bringing to the 'table' is wrong.

I believe that the mental model I have brought to the table is correct and have asked how profit is achievable without edge. I am also interested to know why people believe bending distributions somehow generates returns. In my understanding of the way the world works, it cannot. If it did, it would require the equivalent of financial alchemy. Two TA traders bending distributions in opposing directions without edge cannot, in sum, make money. But, if is believed that bending distributions does generate an edge, this is only possible in some sort of weird situation where money gets created and handed to both TA traders. This is clearly lunacy.

2. Whilst you may not be a directional player, there are indeed other ways to make money. I was referring to an edge in prediction. I did not specify it had to be directional in my first question on this thread and suggested you could relax the sources of prediction axes in the options discussion to include all Greeks. It need not be directional (delta). As you have alluded to in your response, you believe there is an edge in your identification of options positions. I used to trade Gamma. I know what you mean about non-directional edge. This involved virtually no directional prediction in a long term sense. It involved an edge in other parts of the components of option pricing.

I suspect that the reason why your experience is at variance is because you may possess an edge there. Treasure it. Protect it. Risk management helps you preserve it and maximize your chances of extracting it from the market. Risk management is not actually making you money.

3. I certainly agree that some quants take their models too literally and can come unstuck. In the Sub-prime and CDO meltdown in particular, the copula functions were found to be unstable. That blew a lot of balance sheets away. In 1987, the CPPI approaches that were so popular at the time, found the markets to be discontinuous as opposed to what was assumed. That said, there are many many more instances that I have witnessed and been a part of where models support decision making very successfully. For me, the amount of interest I show towards models requires a deep understanding of their underlying assumptions and questioning if they are fact or opinion.

In the obverse, I have seen a great many investors who eschew models entirely, completely impale themselves. Many of this camp have very inflated opinions of their own forecasting power and lack basis for their beliefs. That said, I have also led, been part of, spent time with, interviews, drank beer with...excellent investors who are less reliant on models. Many of these have gone on to become centi-millionares or deca-millionares..

At variance with what I observe on this site, out of the hundreds of investors I have worked...drank beer with, only 1 used technical methods to develop and maintain portfolios. Yet I find here a belief that TA-style risk management, via stops and other methods to increase expectancy dominates thinking and believes this activity alone generates returns.

This is not to say we did not risk manage. We did. But not in this way. We did not believe that risk management alone could generate returns. It just stopped us from blowing up before we could extract all we could. As the late Jack Brabham is quoted as saying (at least paraphrased) "To Finish first, you first need to finish".

4. Your assertion here, that bad risk management hands money to the rest of the market is only correct if you are trading with an edge. Taking excessive risk reduces your expected profitability but it remains positive. You could say that poor risk management reduces the amount of money taken from the rest of the market. It is not correct to say that poor risk management makes the rest of the market profitable because of your poor risk management.

In the situation where there is no edge, you are generating no expected profit so your bankruptcy does not deliver any expected return to the market. To make this clearer, let's say that you risk manage a stock position to lose at most $100. Keeping this still, if your wealth only equated to $100...your expected profit would still be zero. If your wealth was $1,000,000....representing a much tighter level of risk management, your expected profit would still be zero. In this situation, nothing is lost or gained by poor risk management. 'Excellent' risk management without an edge just keeps the trader in play for longer but does not increase their expected return and, ultimately, doesn't do anything to the expectancy for the rest of the market. This part relates to my response to 1. It is this area where I think all sorts of alchemy in TA-beliefs seems to develop from. These are just options with different strikes. Buy an option without an edge gives you cash. Zero edge leads to zero premium. Yet the belief by some is that curving the distribution somehow generates returns.

RY thankyou again for yet another lengthy and somewhat amusing reply.

I shall try not to allow my amusement at the enormity of your post distract me from the simple matter raised.

Whilst I wasn't intending this discussion to centre upon my particular trading methodology, I would have to agree that my roughly 1,000 completed trades for FY YTD have enjoyed a healthy SR accompanied by an enviable ROR.

This has been achieved without so much as a glance at a single chart! So yes!!! What else could it be down to but pure dumb luck!!!?

Now what does this have to do with the questions rof T/A, Edges, Risk management and profits I hear someone type?

Since I don't have terribly many quants, centimillionaires, CEO and fund managers in my circle of peers to name drop, I've opted to establish my credentials in an alternative manner. When it comes to trading I endeavour to practice that which I preach!!!

As was recently pointed out by another poster, there seems to be a difference in our terminological understanding.

When I refer to an edge (within the context of financial trading), the edge itself is not the profit!

The edge is simply the advantage that one might typically expect to be able to capitalise upon whilst competing for profit!

Whether that advantage be derived from such things as superior resources, analysis, intuition, luck, astrology, voodoo or risk management doesn't change the fact that the advantage is simply an advantage!

In other words an edge is simply an edge - irrespective of its source!

Virtually any edge may be capitalised upon in the competition for profit!
Superior risk management can indeed confer just such an edge!!! (I believe that this last statement echoes some of the sentiments in the post by treefrog which precipitated your original question.)

 

[CanOz]

Cynic, would you consider posting some stats on your systems, either back tests or actual is fine, just curious to see what kind of stats your trading

 

[cynic]

Cynic, would you consider posting some stats on your systems, either back tests or actual is fine, just curious to see what kind of stats your trading

Thanks for your interest CanOz.

Firstly I wish to reiterate that I definitely do not want this matter to become about my trading methodology so shall refrain from proferring a complete statisitcal picture of my performance. I don't want to open the floodgates to the usual rush of wannabe experts insisting that I'm doing it all wrong and chanting mantras taken from the sacred scriptures of their chosen guru.

Just last weekend (after having made the unfortunate and costly decision to terminate one of my largest deployments early) I hastily cobbled together a snapshot of the total deposits, withdrawals and maximum original capital deployed across all my active trading accounts for FY YTD.

According to my figures, my withdrawals exceeded my deposits by an amount equivalent to 71% of the maximum original capital deployed. The liquidation value of my trading accounts amounted to another 28%. In effect I'd achieved a 99% overall profit on original capital deployed.

Please note that whilst I'm very happy to be experiencing a reasonably good year, I am actually quite disappointed at my overall performance. I was expecting to triple my original capital and I believe that my failure is almost entirely attributable to faulty risk management.

There were two occasions where I heavily sold the low and bought the high! This was due to a design fault in my grail strategy which allowed my position size to increase dramatically (boys and girls - do not try this at home!!!) resulting in the hasty termination of both deployments at an inopportune time (FTSE last December and DAX last week).

Edit: I forgot to mention - I still like to describe myself as a "wannabe" trader

 

[DeepState]

... looking at the individual trades that are in the results gives me confidence to continue the same process of a combination of fundamental support to a technical process.

Good stuff! Glad it's going well for you.