Reading through 200 plus pages of another thread on edge, which quickly turned into something else, wasn't what I wanted to reply to... So here is the start of ways we can gain EDGE as traders. We all have the possibility of an edge, because the one thing we can control is ourselves. Here are some fast examples that will give you an edge over other traders. 1) only take trades were you expect to make 3 times your risk (helps create positive expectancy) 2) only trade when you have had a normal nights sleep (8hrs for most of us, we take on more risk when we are tired) 3) only risk 1% of your account balance on any single trade (makes for fairly boring safe trading) 4) only trade a system that is robust and will work in all time frames and all markets (this helps stop you from using TA to fit the market to your bias) 5) limit your trading hours to only trade your peak performance time (imagine the problem if a pro quarterback was trying to play three games a day, 5 days a week) 6) take lots of breaks away from the market to recharge your mind and body (something prop traders can't do, as they are expected to show up every day) Anyone of those 6 are factors that any trader can control, and those factors will give you an edge... And there is plenty more out there that can be done. Edges exist! Good Trades, Yukoner
Where do you come up with 3 times the risk? Why not 2 times or 4 times the risk? I've seen this "three times" formula elsewhere in trading. Has 3 become the magical mystery number of some holy grail?
It's been around for a hundred years. The problem is that once one begins thinking about "reward", hope is injected into the mix, along with ego. So-called "positive expectancy" is positive only if the "positive" is realized. Otherwise it's just a theoretical construct that is of little use in live trading. The key to this list is #4. If that's in order, everything else falls into place.
It may be that the OP and other posters here do not know that there is NOT a direct relationship between risk and reward. It appears to me that the relationship is inverse. It is something like little risk yields more reward. Or, great risk yields little reward. Personally, I keep risk at zero or nada and I remain in the market all of the time when something is going on. I liked the part about the three parts of the day. Three 6 1/2 hour markets in series as the world turns. The quarterback thing. Automatic would work with just brief check-ins. One of these traditional approaches is referred to as buy and hold (Google: financial planners).
First question, since this is a topic on edge... How does "optimal position sizing" give you an edge? Secondly, risking max 1% PER any single trade is not scaredy- cat position sizing. Matter of fact, many would consider that too high. Long Dow, short TWTR, and short eur would have 3% total at risk. Optimal is starting to sound like I need to trade perfect. I don't trade perfect, not even close. Which is why I rely on many trades throughout the month... So what if I make 3 or 4 mistakes, or miss 3 or 4 set ups... At the end of the month, it doesn't matter too much. So yea, trading a strategy that allows for me making mistakes is another edge.
dbphoenix I tried to throw some points out for all skill levels of traders. I agree also, in that list #4 is the most important. The point on positive expectancy wasn't based on post trade results, but pre-trade planning for positive expectancy. I never know what the markets will do, but I can operate from a logical framework of reference. Therefore, I only want to "plan" on taking trades that I would expect to give me gains of three times my risk.
Proper definition of risk (not the one perceived, but the actual) implies: lower risk, higher reward. Buying a bottom has an infinite reward/risk, and shorting a top the same. That is why nailing a top or a bottom is only done (in addition to the liars) by the best, the few, the proud, the ....