Are you a Gambler or a Trader?

Updated: Mar 7

An amateur gambler relies on luck while a trader executes a strategy with an edge. By the end of this post, you will know if you have all the components of a successful trading strategy or not. The concepts described are the single most important metric that Quant funds/HTFs/Algorithms in trading. The Mathematical term is called "Expected value", but this post is aimed at the average person. Professional traders do not rely on luck! Even professional gamblers do not rely on luck.

Understand how!

Trading: Strategy and Edge

Now that you know what is luck, let's define what is a strategy. Many people use the words "strategy" and "edge" interchangeable but they are two completely different things.

A strategy is a set of rules that is followed where your outcomes are expected. i.e You either expect to make a win or a loss.

An Edge is an advantage. i.e there is more chance of winning than losing when a certain pattern occurs.

An example of a strategy is:

Trigger: If the price of a particular symbol approaches a support level, I will buy this many shares.

Stop: If the price dips even more say 10% from my entry, I will stop out.

Target: I will take my profits on a 10% bounce from the support.

The above strategy has all the components of a perfect strategy BUT where did I get that 10% value from? Thin air? Why not 11%?

This is where you need to know if there is an edge.

Do you have any statistical data which proves to you that 2 out of 3 times (75% accuracy) the price bounces 10% (reward) and 1 out of 3 times it dips 10% (risk)?

Most of you readers do not have that data and yet you trade.

Do you need to reinvent the wheel and rerun these tests? You can, if you want to. Is it not easier to use the data that our quant teams has already post-processed. In this 80 pg report, we searched for edges by analysing over 600 000 trades in our supercomputers. We love that beast!

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Free tip: Buying at support will only make you lose money for small caps daily gappers. There is no edge. Buying at support works for a different type category of stocks.




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