Sunday, September 25, 2016

Some thoughts on exploiting your edge

Traders who are successful over the long-term have clearly defined their 'edge' in the market or markets they trade. To me, an edge is basically a method that statistically generates a positive expectancy over a large sample of trades.

In order to capitalise on that edge, the trader needs to develop the ability to use that edge. This basically means that a trading plan which is constructed to exploit that edge is followed as closely as possible.

Saturday, September 17, 2016

Trading and the butterfly effect

Have you ever considered how you could come across two or more setups that are seemingly identical, and yet one moves in one particular direction, and another moves in a totally haphazard manner, and possibly start to move in completely the opposite direction?

Mark Douglas gave the best answer to this question in Trading in the Zone. Basically his explanation was as follows:

Saturday, September 10, 2016

Two stocks, two earnings reports, two different actions

Here is the story of two stocks which, this week, announced earnings. I had long positions in both these stocks coming up to the announcements however my treatment of the two trades differed. But first, I will explain my general approach to trading stocks and earnings.

Sunday, August 28, 2016

A reality check - looking at drawdowns

Quite often I meet or correspond with people who seem to think that they can pull a certain amount out of the market on a regular basis. This is impossible - particularly when using a trend following method. 

Depending on your timeframe and parameters, you can easily go weeks, months or even years before new equity highs are made. Therefore, you will actually spend the majority of your time stuck in a drawdown. 

For a lot of people who may be attracted to the potential overall returns of a method, the reality of what you have to go through in terms of drawdowns (both in monetary and time terms) to achieve those returns can be difficult to accept.