Saturday, June 19, 2021

Finding Better Edges In Your Trading

I thought I would do something different with this blog and actually chronicle the development of new edges in my trading.  I'll post my successes and failures and learning lessons, with an eye toward trading psychology and also the psychology of the things I'm trading.

One lesson that I've learned from working with the traders at SMB Capital is that their success is as much about *what* they trade as *how* they trade.  Both are quite important, of course, but if one is trading directionally and the stock, index, or asset being traded simply isn't moving, there won't be a lot of opportunity.  During this recent period of "meme trading", I've also noticed that very high levels of movement are not necessarily very high opportunities for profit.  We don't just want things that move; we also need them to move in meaningful and predictable ways.

When we trade suboptimal trading vehicles, it has the same potential impact on our results as utilizing suboptimal trading methods.  Both lead to significant missed opportunities.

One tool that I will be employing in finding superior opportunity is the Market Charts site.  Long time readers know that I have made use of the Index Indicators site to identify promising breadth patterns in the overall market.  The Market Charts site is a much expanded version of Index Indicators, tracking more indicators, multiple indicators, and a variety of stocks and ETFs.  I respect Mo's work and so view this as a worthwhile platform to begin finding fresh sources of edge.  (Please note:  I have no commercial interest in these sites; as always, I only share resources that I have found to be useful and promising).

Please note the recent blog post on innovating in our trading.  An important theme from that post is that innovation begins by asking different and better questions.  I will be looking to the Market Charts platform to first generate better hypotheses and only then to come up with superior trade ideas.  For example, might it be possible to generate long/short trades and portfolios by finding related stocks that have greater and lesser edge?  By being long the stock with good upside edge and short the stock without such an edge and weighting the pair for relative volatility, one could make money whether the overall market goes up or down, as long as the edge plays out.  In other words, does the presence of a historical edge predict *relative* performance?  

Good trade ideas come from good questions.

Much more to come!


Further Resources:

Three Minute Trading Coach:  Drama Creates Trauma