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LeeD
Registered: Feb 2008
Posts: 1764 |
10-08-10 12:37 AM
Quote from businessstaxes:
an edge is a 'competitive' advantage that your competitors don't have or competitors don't do.
HFT is a competitive advantage since most retail traders can't do HFT thing becuase of commissions and buying power etc. or have access to the servers or software.
money management isn't an edge since anyone can have money management.
An edge in trading is just a signal or a technique that creates a trading strategy with positive expectancy.
So, HFT is not an edge though there are edges in HFT that cannot be used by people with slower market connectivity.
Similarly, zero-rate financing is not and edge... but lots of things suddenly become profitable when leverage costs nothing.
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TradeWrecker
Registered: May 2010
Posts: 52 |
10-08-10 07:56 AM
Money management doesn't create a statistical edge. It doesn't improve the efficiency of an approach, it can however become a huge liability if it's not approached with careful planning.
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jack hershey
Registered: Feb 2003
Posts: 7475 |
10-08-10 11:04 PM
I like the way nodoji included the trader in the market/trader relationship.
With respect to market considerations alone, a critical thinker gets one answer.
When the trader, is allowed to be part of the consideration , a different reasoned result occurs.
Traders "earn" by the cummulative result of aquiring knowledge and skills. This is recognizable by comparing their approach to the asymptote of the "market's offer".
I liked the blackjack example here and, additionally, how the Vegas floor manager "announces" with his cricket. Poker is different since mostly the table is what is being played instead of the house, primarily.
Money management is the trader's edge as he stalks the market. Money management is not connected to the market edge the trader has as defined by his plan and strategy.
Money management comes down to applying "earnings" more than just when the deck is favorable.
Money management is best applied to "earnings". Earnings acknowlege the trader's rights to amplify his money velocity. The essence of money management is the compound interest formula where money velocity is substituted for the interest rate.
The exponent of the P&L curve is what matters. It grows by three things: the trader's right to apply profits he "earned with skill and knowledge; the effectiveness of "taking" the offer; and properly segmenting each segment of the offer.
The trader is "told" WHEN he is allowed to "amplify" his participation. Profits are WHAT is allowable capital in terms of "amplification". Posessing the WHY is the thing that is used to "take" the offer.
None of the above are in a plan or strategy (a future oriented view of things). All are found in actual performance and its iterative refinement.
The P&L is a performance curve; it has an exponent. Try finding that exponent with any conventional money management measurements.
There are many many ways to make money. People who do it well can explain how they do it; not many people can understand what they have heard.
These experts know they have earned the rights; they know what they are being told at all times; they know they are seeing and perceiving the offer that is there to take. Money is just a vehicle.
Money is just a commodity that is used to operate a machine that "extracts" the offer.
Captal is a seed that turns on the machine. Profits are added to the machine. The machine is just operating to EXTRACT THE OFFER.
If a trader is being told to get out of the market; he goes to the "off" setting. trading is only done in the "on" setting. Pregnancy doesn't describe trading since once its on it can't be turned off.
This concept of trading to this or that extent is not a good understanding of the trader's uses of capital. Clothing it in terminology and measures of extent is irrational.
The markets are efficient. They ae huge. They are orderly.
Money changes hands in the markets. It is going away from some and going to others.
The use of money is a trader issue. The trader uses money as a vehicle to make money.
Most people say: "I'm only using some of my money to make money." Is some of your money broken?
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Handle123
Registered: Aug 2007
Posts: 1051 |
10-11-10 07:33 AM
Since I generally have two methods to enter and over 35 money management rules, I would have to say that how I manage the trade is extremely important.
But I believe my "edge" is the years of backtesting my methods over ten plus years of data. Knowing what all the stats show
"Edge" is different for everyone, but as years pass and one gains experience, your "edge" changes.
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drcha
Registered: Dec 2008
Posts: 668 |
10-12-10 02:27 AM
I have been attending a trading group that focuses on options. There is absolutely no discussion of money management in there--none. I have brought it up twice, and while people have been polite, they are not really interested in discussing it.
Interestingly, only a few of the people in there seem to be repeaters. Otherwise there are a bunch of new people each time who don't show up the following time. I guess I know why.
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local
Registered: Jun 2010
Posts: 169 |
10-12-10 03:02 AM
I trade strictly commodity futures. What you descibe as money management I refer to as being properly leveraged. For me, it is the single most important aspect for trading commodity futures. I don't care if you follow ta or fundamental analysis, if you aren't leveraged properly, chances are your success is going to be limited. Most trading strategies focus on technicals or fundamentals which is fine but if they are not augmented but some sort of strategy that includes leveraging your position, you are missing out on an important part of futures trading.
I traded as a local for many years, at times holding 20% of the open interest of a contract. The only way I could trade positions of this magnitude was to make sure I was leveraged properly. With the increased volatility (and increased margins) that commodities now offer,(witness corn over past week), being leveraged properly will mean the difference between profit and loss. Just my opinion.
Regards, local
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