How do we "learn" to take losses and to follow our stop loss?

[nine]

Ahhh ... that makes sense.

What Douglas would call his third phase. In his second phase one learns to follow ones rules 100% so that one learns to trust oneself and overcome the fears that plague most traders. In the third phase, with fears now irrelevant, intuition (or perhaps just finer distinctions such as you describe) can be applied because they are no longer indistinguishable from fear and hope.

I confess to being more of a phase II trader with occasional excursions back into phase I to keep me humble. I look forward to reaching phase III one day.

 

[SOCRATES]

Right, then the next step is to develop an edge. When you develop an edge, with familiarity this edge becomes second nature, so that you begin to do things almost as a consequence of subconscious input that overrides logical deduction and reasoning (which you need at a mechanical level) and then it becomes for want of a better way to describe it a habit. This habit is a very specific way of looking at things and handling trading. We have in parallel to this by now the trading persona as I describe in Journey from the Basement, this allows the trader to multitask even in what for other people may be stressful conditions, perfectly detached and calm. In this calm mental state wonderful things begin to happen, because the subconscious mind and the intuitive faculties are fully energised.

 

[SOCRATES]

This calm mental state that I describe is the precursor to a supercooled mental state, in which there is total alerness and total calm, such that the slightest thing is noticed. Also, time, appears to go more slowly, as you would experience in a trance like state, only that this is different because of the element of total alertness and very quick response, which is not the case in a trance like state.In this supercooled mental state the most minor occurence has enormous significance allowing the mind to "clock it" and this ability to "clock it" together with the other things I have described takes trading to a new higher level .
Is that what Douglas says too ? I don't know because I have not read his book.

 

[ardhill]

Right, then the next step is to develop an edge.

Hi SOCRATES

I have heard a number of people talking about having their 'Edge' but to be honest, I still can quite define what is meant by an Edge. Even reading your post, I still can't quite get it.

I have read Trading In The Zone also, but still my mind just can't get around this definition.

Is it a style, an attitude, awareness of particular set-up, am mixture of these or something completely different?

Can you tell me what is actually meant by an 'Edge', and maybe give me an example?

Thanks.

 

[dbphoenix]

For some, an "edge" means buying the ACME Trading Made Easy Kit with 256 Colors and Optional Hotkeys. I like the following: an edge is the knowledge proved through research that a particular parice pattern or market behavior offers an acceptable level of predictability and risk to reward to provide a consistently profitable outcome over time. Example? Shorting lower highs or double tops off resistance or buying higher lows or double bottoms off support.

 

[ardhill]

I think I understand, if so then the reason I have been having difficulty is because it a the basic very thing that a trader 'should' have before putting money into the market. And not some 'added extra' for becoming more advanced.

An edge is knowing the reason you enter a particular trade, and having enough knowledge and confidence of that reason and the most probable outcome in the time frame important to you.

You should be trading likely outcomes not gambling on chance. Your Edge is knowing the 'likely outcomes' which you trade.

So, using DBP's example, I would be able to recognise when a stock is bouncing off resistance, and be able to judge with reasonable accuracy if it is going to go down or is just taking a run up before breaking through?

I think I will skip the ACME trading system though, hot keys and all

 

[dbphoenix]

You're padding around it while occasionally stepping onto it. Perhaps your most accurate precis is "your edge is knowing the 'likely outcomes' which you trade".

This is all straight out of the standard Scientific Method by way of Douglas and Trading in the Zone. Nothing secret or difficult, though determining the probabilities with regard to your setups is time-consuming. I don't know why people put money into the market without having the slightest idea of the probability that the trade will be successful or not, but this practice is common, which I suppose is why so many people characterize trading as gambling (after all, how many visitors to casinos analyze the probabilities of the individual games?).

If you're interested, click my signature below and scroll back to post #434. I posted some stuff about the SciMeth last year.

 

[JumpOff]

You should be trading likely outcomes not gambling on chance. Your Edge is knowing the 'likely outcomes' which you trade.

So, using DBP's example, I would be able to recognise when a stock is bouncing off resistance, and be able to judge with reasonable accuracy if it is going to go down or is just taking a run up before breaking through?

Hi ardhill,
It's important to distinguish between 'probable outcome' and 'prediction'. If your research suggests that a certain pattern of buying /selling pressure leads to the price proceding to go up/down 80% of the time, then that's an edge. It's a reason to wait for that setup. It's a reason to wait for the best moment in that setup. It's a reason to enter when you see that moment. It's a reason to get out if the price doesn't leap away in your favor.

You don't have to have the ability to see into the future, you just have to wait for the best setups, enter them as precisely as you can, and cut your loss short if it doesn't go your way.

JO

 

[SOCRATES]

Sorry, neither you Jump Off, nor you DB Pheonix are correct in what you say about an edge.

What you both describe is prudent trading, as a consequence of mechanical skill.

An edge is much more than that, because it involves possession of total expertise.

Total expertise does not just encapsulate very deep and detailed knowledge about all this, it includes having extra abilities that confer upon the holder that extra indefinable advantage.

This is because in addition to all the components being crucial to the core skills of a trader, there are other add ons, which are specific extras.It is these add ons that give the edge.

 

[dbphoenix]

Sorry, Socrates, but neither are you "correct".

One doesn't require "extra" je ne sais quoi in order to make a living at trading. All he needs is a willingness to do the work required to create the edge as defined earlier. The fact that few traders are willing to do the work is a separate issue. One could call this willingness an "indefinable advantage", but that just makes mysterious and secret what is actually very transparent and open.

There are no mysteries, no secrets, no "indefinable extras". Just hard work and the willingness to do it.

 

[nine]

Ardhill,

Essentially I agree with db's scientific/statistical definition of an edge. The only reason I am adding to this is that you have defined an edge as focussed on the entry and, just in case thats all you mean, I would like to add to that. The complete (not quite to the socratic level) edge is an entry, a stop, and a managed exit.

Thus an edge could be as simple as: buy 60% retrace in an uptrend. Stop at 98%. Sell 1/2 at 2% and the other half at -25%. (FWIW I did test this one daily on a financial future and it was surprisingly good).

Kiwi

I think I understand, if so then the reason I have been having difficulty is because it a the basic very thing that a trader 'should' have before putting money into the market. And not some 'added extra' for becoming more advanced.

An edge is knowing the reason you enter a particular trade, and having enough knowledge and confidence of that reason and the most probable outcome in the time frame important to you.

You should be trading likely outcomes not gambling on chance. Your Edge is knowing the 'likely outcomes' which you trade.

So, using DBP's example, I would be able to recognise when a stock is bouncing off resistance, and be able to judge with reasonable accuracy if it is going to go down or is just taking a run up before breaking through?

I think I will skip the ACME trading system though, hot keys and all

 

[dbphoenix]

The complete (not quite to the socratic level) edge is an entry, a stop, and a managed exit.

Though not necessarily consistent with the definition I provided earlier, which is not to say that this definition may not be fine. Depends on what one wants.

 

[ardhill]

Well, this has been interesting

JO and Kiwi I appreciate your input and clarification. I didn't explain myself fully in my short answer - a bit like going into a trade without fully understanding why

I believe that I understand what you are saying DBP, I read your other post as well as you suggested, and overall things have become clear to me - Thank You

I do find it interesting that there is a difference in opinion on this issue between DBP and SOCRATES, both people I feel are suitable 'qualified' to answer my question on what is an Edge, yet there is some disagreement.

This makes me feel a little better in the fact that I have been having trouble understanding exactly what people mean by the term, it seems that no one definition is actually believed to be an Edge by all who use the term. Therefore, I guess that others have been having a problem with this as well as me.

Personally, I still have a difficulty understanding SOCRATES answer. Tough I feel this is more the fault of my simple thinking rather than the answer given.

 

[nine]

Personally, I still have a difficulty understanding SOCRATES answer. Tough I feel this is more the fault of my simple thinking rather than the answer given.

Its often difficult to decide whether the emperor is wearing clothes or not.

 

[SOCRATES]

Sorry, Socrates, but neither are you "correct".

One doesn't require "extra" je ne sais quoi in order to make a living at trading. All he needs is a willingness to do the work required to create the edge as defined earlier. The fact that few traders are willing to do the work is a separate issue. One could call this willingness an "indefinable advantage", but that just makes mysterious and secret what is actually very transparent and open.

There are no mysteries, no secrets, no "indefinable extras". Just hard work and the willingness to do it.

There is much more to all this than you think, according to your frame of reference, but I am not here to argue interminably about this, DB. If you are happy with your definition, fine, please yourself. Because if you ask any top trader to reveal his edge just to anyone who asks for it, the answer the recipient will get, as you know, is a forgone conclusion.

Kind Regards As Usual.

 

[dbphoenix]

I do find it interesting that there is a difference in opinion on this issue between DBP and SOCRATES, both people I feel are suitable 'qualified' to answer my question on what is an Edge, yet there is some disagreement.

This makes me feel a little better in the fact that I have been having trouble understanding exactly what people mean by the term, it seems that no one definition is actually believed to be an Edge by all who use the term. Therefore, I guess that others have been having a problem with this as well as me.

There are those -- and perhaps Socrates is among them and perhaps not -- who believe that one must trade intuitively to have an edge. If this were true, then there would not likely be many such people.

However, all of this is largely extraneous to the central issue, which is at least making a profit and perhaps making a living (i.e., a trader doesn't seek an edge just because he thinks it will go with the curtains; he's looking for a way to make money). The fact is that one need not be an intuitive trader in order to make a living at this, much less turn a profit. In fact, logically, one can do quite well without trading intuitively at all.

Therefore, if one wants to wrap himself in mystery and secrets and hidden knowledge, that's fine. Who cares? But that has nothing to do with making money, which will be accomplished by the creation and development of a consistently profitable trading strategy, whether that strategy incorporate intuition or not.

"Edge" is, of course, not the only stick in the spokes. Try "trend".

 

[dbphoenix]

if you ask any top trader to reveal his edge just to anyone who asks for it, the answer the recipient will get, as you know, is a forgone conclusion.

Perhaps. But then I'm not all that interested in others' edges, unless perhaps I can learn something from them. Rather I'm concerned only about my own.

 

[SOCRATES]

I quite agree. This is why an edge is an edge, and the intellectual property of the owner thereof.

But I am not interested in learning anything from mechanicals, as you know very well I have explored the whole lot, and brought them up to date for the 21st century, and beyond.

Therefore current mechanical edges do not interest me as I view them as slow,clumsy and outdated.

I speak for myself and I am not willing to share my edge either, which is very far ahead indeed away from any current mechanicals, especially those in mainstream vogue.

I have been taught the bitter lesson not to be generous with my hard earned knowledge as a consequence of my experience, which is considerable, and by the collective and individual attitudes on this site, and elswhere.

Kind Regards To You As Usual.

 

[dbphoenix]

Not sure where "mechanicals" come into it, but if you're happy with what you're doing, that's all that matters.

 

[SOCRATES]

Mechanicals are what are revealed by a price time and volume chart with open high low and close bars. That's all.

Kind Regards.