Alright, picture this: Ever noticed how even the tiniest advantage can lead to big wins? Like how casinos always manage to come out on top, even with just a small edge? Well, guess what? You can apply the same principle to trading!
In my trading strategy here on C2, SK Small Caps, I stumbled upon this delightful little edge that certain small caps have over their peers. It’s like finding a secret stash of gold every time I dive into the market. And let me tell you, it’s not about having a massive edge – even a tiny one can work wonders if you play your cards right!
But hey, before you dive headfirst into the trading world, remember this golden rule: Know. Your. Edge. Inside out. Backwards and forwards. Because without it, you might as well be playing blindfolded darts in a hurricane.
So, spill the beans: What’s your edge?
I’ll bite. Here’s a link to some of my writings about my quest for a new edge, started in 2023:
TL;DR: There is a low volatility edge in the S&P 500 index, and in SPY. I coded a method to exploit the edge to beat buy-and-hold SPY in both real and risk-adjusted returns, and released that code. I also explored the edge inside and out, backwards and forwards, and published the charts and graphs to explain it.
In truth, I’ve done more work on that Low Vol SPY edge than I published, and have developed other technical approaches to utilize the edge, and I’ve been trading on that edge with some success ever since.
I have another edge that I have done similar in-depth research on, and am utilizing both edges live in my own retirement account and here on C2. I’ve not written about that edge, nor am I planning to do so, but my research techniques, algorithm development, and trading approaches are similar for both.
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So… I’ve won 74 trades in a row without making a single “decision” - 100% mechanical trading. Successful trading begins with an approach that addresses irrefutable facts about the markets. You have to uphold a sort of “Newtonian” simplicity. When we first learn of Newton’s laws of motion - i.e. you have to move something in order for it to move, and you have to stop something before it can stop - we might quickly find ourselves skeptical of their profundity simply due to their obviousness… but the embrace of these laws are indispensable in mechanical and aerospace engineering, simple and complex machines, and even the martial arts like Jiu jitsu. So - what are “Newton’s laws of motion of the markets?” What are the most obvious aspects of trading that we can embrace that could possibly give us our edge on the markets? I discuss this in my essay, “The Phenomenology of the Markets” (which you can find on YouTube) - here is an excerpt:
“We seem to have a propensity to believe that what is artificial is some erratic deviation from what are considered to be natural processes. We must realize, however, that what is deemed “artificial” is still emergent within the confines of our shared universe, and is therefore by definition natural.
Building upon the revelation of the inextricable human elements that generate market dynamics and price action, we then need to consider that within this complex system, a consistent, discernible pattern is bound to emerge. This pattern, akin to a leitmotif in something like a symphony, highlights the predictability of human behavior when totaled across numerous and seemingly unpredictable individual actions playing out across all markets and all tradable instruments.
It then becomes clear that this emergent phenomenon is not merely anomalous, but rather an echo of underlying universal principles that govern human interaction. The perpetual back-and-forth of individual strategies, each based on subjective calculations of risk, reward, and utility, merges into a macroscopic imperative that reflects collective human tendencies. As such, the markets serve as a microcosm for observing and understanding broader economic and even cosmological patterns.”
While I realize this might come across as pedantic, I implore you to ask the most simple questions. Where does it start? It starts with a price? Then what? Price will move away from that initial price. Then what? Hm… Price seems to always revisit that price… and so on and so forth.
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I believe this is @AnonGuy 's forex strategy, remarkable indeed for its high win% rate. I fail to grok anything about the edge as described herein.
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Thanks for the shout-out.
I like to equity curve. My edge is set in stone as well.
Hey there! So, I just finished watching your video, and I gotta say, it’s pretty impressive! But, I noticed something—along with all those wins, there’s also a 14% drawdown. Now, correct me if I’m wrong, but is that drawdown because sometimes a position dips before bouncing back to a winning streak? Or is there something else behind it? I’m curious, in the process of developing this mechanical system, how high could that drawdown potentially climb?
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Hello, thank you for the kind words. There is no need to correct you - you are correct. It is normal for me to experience a drawdown as the trade works out before price moves in my direction. The 14% was due to a “fat-finger” trade early in the strategy - a noticeable 88 contracts - but the trade worked out and I’ve been diligent in avoiding those kinds of mistakes. Since that trade, the normal drawdown as been from 1-7%.Since I am careful not to enter higher-risk trades, those are the kinds of drawdowns I can expect in the future, though of course that is not guaranteed. In an unlikely scenario, barring clerical error, I would not prognosticate the drawdown entering any further than around 20% territory - and I’m trying to be generous with that estimate. Hope this clears it up! Thanks!
Appreciate the response. Quick couple of questions 1) Are you averaging in? 2) If yes, do you have a point where you call uncle ( cut your losses) ?
Sean, you can answer (1) for yourself for most strategies: click the See More Details button at the top of the trade list, and the details of Mystic Trader’s trades appear. In short, yes Mystic Trader averages in. In early April a USD/JPY trade was started that continued to average in eight times over the next three weeks, and closed all for a gain one day after the last partial trade opened.
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I’m all for strategies that aim for consistency, as long as they have a backup plan if things take a turn for the worse. Take my strategy, for instance. I keep things in check by constantly rebalancing. With 10 stocks in play, even if one takes a hit, it won’t tank the whole account. Plus, I’ve got a hedge in place to shield against any major market downturns. It’s all about protecting the account so we can keep fighting another day!
Yes as Babbage mentioned, I do average into my positions. And yes, I do have a progressive system to call it quits and take a stop loss should a trade go against my position to a certain point.
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Gradually building up, swiftly securing profits, and then repeating the process. It’s often referred to as grid trading, and it can be quite effective. The crucial aspect is to steer clear of being blindsided by abrupt and extended market shifts against your position. That’s why I inquired about whether you’ve implemented hard stops for your positions.
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Ah! I’ve implemented grid trading before, but I was not aware it had been given that name. “The Mystic Trader” strategy on C2 would not qualify, though the algorithm applied in “TMT” can be used to inform a specific kind of grid trading. It can be extremely potent, but it must be timed correctly.
To carry on with the point I was making about simplicity and point out the obvious - the market is comprised swift moves followed by consolidation. In grid trading, you should see yourself as a nomad camper, staying ahead of “the storm” (or, the swift moves) to establish a new region where it will operate within a new range. You need to determine where the market will establish a range, and set up camp. One direction will be “checked”, and then the other direction, conversely, both perhaps multiple times. Your method should dictate a disciplined approach with historic precedent and proportion to sweep the range, and then you break down camp, and get out of the way. The idea is to always stay ahead of the next “storm”. (Forgive the trite metaphors, but it helps us visualize the approach.)
Again, “The Mystic Trader” strategy is not based on this. But it can be utilized to inform many forms of grid trading.
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As long as your risk is defined, even grid trading can be very profitable. The same applies to any strategy with an edge.
How are you doing here on C2? Are you getting the following you’d hoped for?
No, not quite yet. I don’t think the slower growth is very attractive to subscribers yet. Starting to get more looks though. Maybe they’re waiting on a loss. But, I believe if I maintain this consistent performance, the attention is sure to come. How about you? Do you maintain a strategy on C2?
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I do. I trade a strategy that uses a specific metric to select stocks within an index that have historically outperformed the index itself.
I have been trading it in my account since the beginning of the year after many months of research developing the edge.
It has proved profitable in all cases with minimal drawdown due to it being hedged.
I am not too concerned about subscribers as much as I am about proving it can do as it did while testing. The good news is it’s working well so far just as expected.
Good luck with your work.
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