Edge and aha | stockbee


Edge and aha

The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.
Marcel Proust

Market edge is based on unique insight in to market structure or market behaviour. One can go about very methodically to find such insights or sometime they are accidental discoveries. But the key is insights are about the "Aha!" moments – those moments of clarity when the solution to a vexing problem falls into place with a sudden insight and you see connections that previously eluded you. They are essentially moments where you say to yourself " I never thought of it like that before" or "Now I get it".

Many of the market insights are in the public domain. So why do some traders get it and some do not. If you think about it, probably it has something to do with perspective or your readiness level. Some insight come after experience. So a same set of insight might be quickly grasped by a experienced trader while a new person never understands the significance of it. That is one of the reason why new traders flirt from one idea to another or get easily influenced by others ideas. While that stage is essential in development of insight, if it becomes too long a process, it is not much of use. Also if you lose your money by the time you gain insight, again it is of no use.

One of the other reason , why certain traders are quick to get the insight and others are not is because of mind training. Most of the education process is structured towards methodical solution finding while insights are about flash events. You can train your mind to think in more insight hunt mode.

To give you an idea about edge and aha, lets take the book " How Charts Can Help You in the Stock Market by William L. Jiler". While reading the book for the first time I read the paragraph:

Line and saucer form the chart reader's dream patterns. They're easy to recognise, they're reliable, they usually portend an extensive price move and- best of all- they give the chartists plenty of time to assume a market position close to the bottom or top of ensuing swing. They have only one major drawback: they're rare among popular, actively traded stocks.

To me that was very valuable insight and aha moment. I promptly picked up on the concept of neglected stock in it and defined neglect or less popular stock mathematically based on their prior many years move. That lead to my virgin/neglected strategy, which gives rare but very profitable signals. Now the information on which it is based is completely in public domain. Same way the earnings lead breakout insight is in public domain and that also for many years.

Or take Episodic Pivots, it is completely an adoption of a public domain idea. Again in this case while flipping through Swing Trading:Power Strategies to Cut Risk and Boost Profits by Jon D.Markman book, I picked up just that one paragraph from the book and built a system around it.
" Basically it comes down to finding stocks with greatest short term momentum that will turn in to long term momentum."

After the insight comes a simpler process of making the idea work. There are two components to it " why " and " how". 'Why' should this idea work or 'why'it works. 'How' it works or 'how' can I make it work. If the insight was crystal clear the "why" and " how" are easy.

So if you are searching for edge, unless you get the aha moment, you will not find it. In life only self evident truth matters, because only self evident truth creates conviction. That is one of the reason why you seldom get results by following someone 's method.

Later: Why you should not trade any of the ideas discussed here......


James said...

aha! "Line and saucer form" works? I don't even know what it is and how it looks like...

Anyway, you're right is saying that I should not trade this idea. Before I should be convinced that I can make it work. And to be convinced, I should study it and verify that it works on past data. Only then I might want to use this idea. This is a lot of work but if it works it might be profitable.

There are many ideas out there. I can't try them all. Thus, in the absence of insight, I try the ideas of the people I find most interesting.

F. said...

Pradeep, I mentioned this method of finding edge properly through experience. But, when I mentioned it a few weeks ago on one of your posts, you dismissed it as "craft".

IMO, the ultimate intraday edge lies in understanding *who* is in the market. Most days develop like this: institutional transactions in the first hour accompanied and followed by dumb money participating in an exaggerated move. There may or may not be more institutional participation later in the day, but there is plenty of money to be made trading alongside the institutions and fading the public when they try to fade tops that never form and buy dips that fail to form. I find the advance/decline data, CBOE volatility indexes as well as the total put:call ratios to be the most telling indicators of any.

gosu said...

Pradeep said...
Why you should not trade any of the ideas discussed here...

Then why in the world waste your time, energy and money in writing a blog religiously?