All it means is that after taking x number of trades (decent sample size say 1000 atleast ) over say 5-10 years you have losing trades, you have winning trades and after all taxes and impact cost you still end up with decent profits - while managing risk and max drawdown.
You need to test things yourself, look at things from far away and close up. Day to day trading can have streaks of good and bad days. Drawdown periods can continue for many months, you have to endure and keep executing day after day. Manage risk per trade and keep max dd within control. And then diversify.
python/pandas is great. I wrote my own backtesting, execution and charting tools. Maybe overkill and but works well for me and i can work on Linux …
Yes things can change but there is a lot of randomness to it as well. There is need for some common sense and some acceptance of uncertainty too. I now prefer to let things be and not over fit things based on recent ( say past year) performance. At some point, i might look at the system again if i see some fundamental shift. Perhaps it also depends on how complex system is. At its core, so far my systems use just 1 or 2 things.
Once a system is set, too much tinkering will result in curve fitting to recent behavior. Crude example - small stop vs wider stop. say 2 atr vs 3 atr or something like that. In some years smaller might do better, perhaps we had cleaner moves that year. In other years it might be opposite. If keep on fitting to recent past, we might end up switching too late. At the least this process of optimization should be part of backtest too and then you can check whether it helps.
But instead, i rather work on multiple systems - it makes a big difference in risk reduction. I completely underestimated this.
I think the real edge is about having knowledge and experience. Those who know the market well will surely have an edge over those who don’t. Profitability always depends on how skilled you are no matter what kind of strategy or methodology you use for picking stocks and trading. If you have the relevant knowledge and expertise you can stay profitable or at least minimise losses even in unfavourable market situations.
This one is interesting. People talk about minimising losses. But what if you can power through losses?
Taking the fact that market is uncertain. You never know this trade will hit that intended loss or that intended target. The only way is to let the trade play through.
Skipping things, you have a loss rate of 61%. Is this an edge?
Yes. If you have positive expectancy. Then this also means most trades you trade will be in loss.
The only way is to take profits in terms 4R to 10R.
As you trade long enough in the market ,your win rate will decrease drastically. Be prepared for the fact that a strategy can have a win rate of 31%, yet make money. You just have stomach through the losses. The uncertain odds in your favour can happen. And you must have the stomach to eat big wins.
The real edge in this game is staying alive. Don’t blow accounts, stay alive. You after 5 years will have a set of eyes that will see the same chart with a wiser perspective.
Edge exists, but it can only be honed and truly utilized with discipline - otherwise the edge can become insignificant or counterproductive. For an edge to be truly realized it must not only exist, but must also feel real to you - else you tend to question it and deviate from it when a few trades go against you. It can be a conundrum, especially if you are inexperienced.
A system/edge can go to sleep for months, even year+. Even then it can be hard to tell whether markets have changed or this is just a phase. There is a system that i don’t trade that was in DD for 1.5 years, but then started working again and has worked for many more years. My main trend following system is in a sort of DD phase for 7 months now. Its making new highs but only slightly and keeps pulling back …
It feels as if its because of scaling up, but i doubt that - esp for systematic ones without psych issues. This will probably only be a factor if your volume is significant enough vs volume traded.
Only protection is diversification, apply multiple edges, different types of them. Started another system and scaling it up. That one is working well for now. Diversification also results in this really great overall risk reduction if systems are different enough. So while last year has been somewhat tough, atleast it forced me to look at diversification and how things work together and now that will be my focus in future.
I also hate the amount of taxes and slippages we have to pay, intraday in stocks is particularly affected. So only thing i can do is what is in my control. Look for edges where taxes are lower. In my case i can trade stock futures, i can also try trading Higher timeframes. Some one could perhaps shift focus to buying options or trading larger swings in NF/BNF .
Edge is something that sets you apart from other traders in the market. It can be a unique strategy or trading plan that makes you more profitable than the general crowd of retail traders. But I just prefer to focus on myself and getting better as a trader. In my opinion, there is no better edge than being a lifelong learner.