Tuesday, January 29, 2013

You And Your Edge.

First off, let me say that I strongly believe most traders (all?) have an Analytical Edge in the market to some degree...the problem is, that's not nearly enough.

For me, Real-World Edge= Analytical Edge + Emotional Variance.

The EV is always negative, unless you're a robot...then it can be as high as zero. Cue shitty paint drawing for explanation:

Dampen your own mood swings and keep your edge's heart beating!
Everything in the world revolves around cycles and waves. I see the working of an edge as a wave not unlike those you find in the sea or on an ECG. Even the spinning of the Earth can be tied into the Sine Wave. In short, if it's pulsing, it's good. If it's flat, it's dead!

So most/all of us have some degree of AE in the beginning similar to the first green , semi-sine, wave in the above doodle. Then we get in the way with our huge EV, crashing into our AE.... neutralizing it with much the same effect as those anti-noise earphones people use on planes.

The result is a dead edge.

It's my opinion that the easier (much easier!) path to trading success is to try to get that red line as close to flat as possible rather than look to find/create a sharper edge in the market.


Unknown said...

Do those anti-noise ear phones really work? lol

Most likely the emotional variance will dull the best of edges. Edges are over rated... sounds like a great title to a future post ; )

James Edwards-Marche said...

Yup, EV will indeed dull any edge and even the best traders are subject to it. The end result comes down to:

1) How much Analytical Edge you have (not so variable amongst all participants)

2) How much you're able to curb your own EV.

I'll be looking out for that future post!

PS I had a pair once. They did reduce the background noise but kinda messed with the audio too.

Rachel Hunter (TraderRach) said...

Great points in the post thanks.

What gets measured gets managed. I analyse all variances between my system results and actual results. I then work to eliminate variances from my trading, including emotionally caused variances. Over time this has had a great positive affect on my trading.

Cheers Rach