The Secret Edge

[HowardCohodas]

You total numpty.

Have you experienced a serious drawdown yet? If not, you're talking out of your backside (but then we all knew that anyway).

Had to look up the word numpty.

Have I experienced a serious drawdown? Not in the 60 months of backtesting. Not in the 5 months of paper trading. Not in the 3 months of serious money trading.

Who's the numpty? Why would I place serious money at risk if I had encountered serious drawdown during my testing. I don't even begin to understand that logic.

 

[HowardCohodas]

I really don't know why I bother.

Because you care?

 

[JRP2891]

Have I experienced a serious drawdown? Not in the 60 months of backtesting. Not in the 5 months of paper trading. Not in the 3 months of serious money trading.

Why would I place serious money at risk if I had encountered serious drawdown during my testing. I don't even begin to understand that logic.

This comment is ridiculous beyond belief and betrays your lack of understanding of how real profits are made in trading. If anyone was in doubt as to whether you're full of hot air, you've answered them there.

 

[robster970]

Then you dismiss the concept of due diligence?

Also, I would suggest that your focus on 29 trades and 3 months ignores any statistical tests of significance regarding quality and quantity, even on this small a data set. I'm comfortable with those having that opinion, even if it is mathematically challenged. I do mind when these kinds of statements are considered authoritative, especially by those making them.

No. You are attempting to shift the argument Howard. The crux of the dispute is on your the statistical viability of your live trades. You may assume correctly that most people don't have a natural science/computer science/mathematics background. However there are a small and significant number who post regularly on here who do. So try us for size. Validate the claim of statistical significance.

e2a - you would probably not be getting this heat if you weren't quite so dogmatic in assuming that other posters are intellectually inferior to you.

 

[HowardCohodas]

This comment is ridiculous beyond belief and betrays your lack of understanding of how real profits are made in trading. If anyone was in doubt as to whether you're full of hot air, you've answered them there.

If you are trying to convince me of something, try making a case for it. I'm always happy to change my approach based on irrefutable "evidence" and gladly credit those who caused the change. I've a long list of these over my career. Some were friends. Some not so much. Do you care to join the fraternity?

 

[wackypete2]

All these threads seem to going in the same direction..getting rather useless reading or posting anything.

Sorry, just my opinion.

Peter

 

[Marky1982]

All these threads seem to going in the same direction..getting rather useless reading or posting anything.

Sorry, just my opinion.

Peter

You just added to the problem.

 

[Shakone]

That's about the third thread now, where it has turned into an attack HowardCohodas thread. If you don't think he knows how to trade, so what? Maybe he can, maybe he can't. But this leads me back to

I think people spend too much time looking for an elusive edge when they would be better served getting advice from a succesful trader and then attempting to focus on the methods taught for a long evaluation period. The evaluation is needed as these techniques may be things you just can't adapt to.

This is fine as far as it goes. I don't find anything to disagree with. The only issue is whether they can judge who is successful and who isn't. This is an even bigger problem on a board. Sometimes the more convincing arrogant types who push themselves forward as gurus and dismiss anything they don't agree with, are great salesmen but can't trade. These types seem to have plenty of time on their hands to do it too. I don't think there is a great deal to learn on this board once you reach a certain level of understanding. Sure it is good for the basics, and throwing a few ideas around, but not much more.

 

[HowardCohodas]

No. You are attempting to shift the argument Howard. The crux of the dispute is on your the statistical viability of your live trades. You may assume correctly that most people don't have a natural science/computer science/mathematics background. However there are a small and significant number who post regularly on here who do. So try us for size. Validate the claim of statistical significance.

I don't think I am trying to shift the argument, but I won't argue the point.

I've assumed all along that there were those on the forum with significant statistical talent and training. I think any tests I have done or would do would be considered suspect here. More convincing to me, if I'm wrong, as well as the skeptics here, would be for someone with statistical training to take the raw data of my results and report on their conclusions.

 

[wackypete2]

You just added to the problem.

Well, I agree, you are correct. But I must say you've made 12 posts in 2 years and that's the best you can come up with to contribute here at t2w?

Peter

 

[meanreversion]

Moreover, has anyone noticed that 82% of respondents to the poll are profitable - isn't this slightly higher than the 10% figure usually bandied around .. ?

 

[wackypete2]

The results seem skewed, yes, but I would venture a guess more members who ARE profitable would respond whereas many of those who are NOT profitable would not want to respond.

Peter

 

[robster970]

Moreover, has anyone noticed that 82% of respondents to the poll are profitable - isn't this slightly higher than the 10% figure usually bandied around .. ?

I wouldn't exactly call my daytrading profitable yet. More breakeven right now as I try to iron out my desire to trade off piste in my pursuit of 'discretionary'. I never expected this to be a quick learning curve though. Just getting the hang of it really. Earlier in the year was quite amusing before I got to breakeven - NOT.

Swing trading is ok.

Net - moderately up but this is my first 12 months for real so from my perspective, way too early to tell if this is sustainable.

 

[bbmac]

Moreover, has anyone noticed that 82% of respondents to the poll are profitable - isn't this slightly higher than the 10% figure usually bandied around .. ?

Also may be significant (although the sample size is small - so probably not!) is that of the 7 that so far have voted 'not profitable' in the poll, 4 believe in santa claus !! Is there a correlation between lack of profitability and that ?

Oh dear

G/L

 

[Dommo]

Howard, are there any parameters in your system? That is, did you test a 'space' of similar, but differently parameterised strategies?
I think you said you tested over five years. In addition to 5 year record, were you comfortable with results when partitioned over time (say, 5 serial 1 year results, or 10 serial 6m results)?
Thanks

 

[bedsit]

Moreover, has anyone noticed that 82% of respondents to the poll are profitable - isn't this slightly higher than the 10% figure usually bandied around .. ?

May be the case. I've heard it from a TA guru that only 3% are successful. So even if you use this extreme view, it should be round 6,000 members who are profitable (out of 200,000 T2W forum members):?:

 

[HowardCohodas]

Howard, are there any parameters in your system? That is, did you test a 'space' of similar, but differently parameterised strategies?
I think you said you tested over five years. In addition to 5 year record, were you comfortable with results when partitioned over time (say, 5 serial 1 year results, or 10 serial 6m results)?
Thanks

This is one of the more insightful questions I've been asked. Thank you.

There are two key parameters. The level of return to be sought and the probability estimate of the underlying touching the short strike. I did not do a compete problem space search. I started with parameters derived from a simple mathematical expectation calculation. Without much deep thinking, I decided to start with 5% return on each spread with no more than a 20% probability of the underlying touching the short strike. So my search space was confined around these parameter settings.

What I found was that increasing the return simply made fewer opportunities available. When available they were successful. It also reduced the opportunity for forming an Iron Condor. The reason that this is important is that the second spread can be put on without an increase in margin requirement. Thus when an Iron Condor is created, the return becomes 10%. Thus the "overall" account return was reduced by demanding a higher credit on each spread.

The choice of the probability of touching setting depends a lot on the traders risk tolerance. The higher the risk the more opportunities present themselves given the same credit target. But drawdowns become more of a nail biter.

When serious money was involved, I began modestly until I got my sea legs.

The test data set was randomly divided into two parts such that an option could be tracked for it's entire life as part of a credit spread trade, a maximum of 59 days. This permitted a "training" on one data set and an "evaluation" on a data set the "trained model" had never seen. This is typically called "avoiding the curve fitting syndrome."

Furthermore, randomly selecting the roughly 2-month long segments reduces any bias due to not covering a variety of market conditions in both sets. It is just as wrong to throw out a potential good strategy as it is to think you have a good one when you don't.

 

[trader_dante]

It might be just me but I would have thought the answer to the original post was pretty black and white.

Obviously people have some edges that they are not prepared to disclose. To those people, the edge that makes them profitable is "proprietary" so of course a "secret edge" exists for those individuals implementing it.

But there is no particular secret edge in my opinion.

For the most part, the edge in the profitable traders I have worked with comes as a result of just knowing their setup and most of it is not exactly rocket science. They developed it through hard work and screen time.

So to me, most edges seem inherently personal. They are developed through individual experience.

Whether most people can follow them is a whole different story and I am not of the general school of thought that they can.

I work closely alongside a guy who has an outrageous edge and who has made a fortune from next to nothing. I know his edge because I'm a part of it but I find it hard to utilise myself because I don't have the skill set (or the situation) that he does. The funny thing is he considers his edge "secret" but it''s not. It's just no one would think of it or believe it if you told them.

For some people the edge is not even particularly in the setup, it's inside them. I think there is a huge edge in such things as your personal attitude towards money and that is something that most people would never consider.

-Tom

 

[DionysusToast]

DT mentions communicating with genuine successful real fulltime traders. I just dont see how that would ever be likely. Why would a 'real' trader ever bother helping someone. Why waste their time? Why charge a few hundred bucks if they should be making a good few thousand per day from trading? How would you know who to trust? That task in itself seems about as difficult as day trading in the first place!

Very true indeed.

There's a few ways that this can be achieved. For me, I have a friend that's a market maker, we chatted about the biz, we went for beers with other guys. I have a friend that works for a hedge fund - same kind of thing. As someone that's lived in 7 countries, networking has become a necessary evil, otherwise I'd have no mates.

In terms of finding trainers that are genuine - that is harder. You need to fail once or twice and lose a bit of money before you can recognise someone that is bull****ting or not. If you are the type that can learn from your mistakes and garner wisdom from them, you will find spotting the frauds is easy.

 

[DionysusToast]

It's like a Football (Soccer) game Howard. Nobody is really interested in how many goals you scored in practise.

Has to be said - that is one of the best analogies I've read on this forum in a long time.

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