Does the Statistical Edge Bring Forth the Mental Edge?

[Enigmatics 10]

Theoretical question and wanted to get everyone's thoughts.

 

Can we assume a system with a significant statistical trading edge will naturally bring out the "mental" edge required for trading?

 

Or is that question too simplistic?

Edited December 13, 2013 by Enigmatics

[Enigmatics 10]

It's a good question for a discussion.

 

I would say it is the basis for a mental edge,but as you say,it is a simplistic proposition.

If you don't have the right mental makeup to begin with it's gonna be difficult.Actually that statement might suggest,if we turn this on it's head,that some people have the mental edge before they have a trading edge.

 

If your edge is something temporary then trading edge doesn't solve the mental problem if you haven't already solved that.

 

This particular part of your response is what I relate to the most. I definitely did not have the mental edge before I got into trading. I wasn't a natural born risk taker. I'm not talking in the reckless sense of the word, but moreso just putting myself out there and taking reasonable, natural risks in life. I have always been more passive-aggressive and reactionary in nature.

 

Coming up with a method after nearly 10,000 hours in this market studying it's behaviors wasn't the hard part. I'm very much suited for it because I've always had a mind for that kind of analysis. Re-wiring my mind to acclimate itself to the nature of the beast been most difficult part of this process sent I set out on the trading journey. I'm still nowhere where I'd like to be.

[MightyMouse 12]

A trader takes money from other traders. It helps to have had experience gaining money from others before someone delves into trading. A person can learn a lot about trading by learning how to buy a car (or any other object) and sell it at a profit. He'll learn how to buy from people needing to sell and sell to people who need to buy. He'll also learn how to cut his losses when he made a mistake and be patient when he knows he is right. Those same skills will help a trader identify when a market is underpriced or overpriced so that he can buy low and sell high or the reverse. The rest is simple. Create or use the available tools and techniques for risk management and market entry and exit and go to work buying or selling. I think learning how to trade in the markets is suicide or you will waste a whole lot of time.

[sergso 10]

A trader takes money from other traders. It helps to have had experience gaining money from others before someone delves into trading. A person can learn a lot about trading by learning how to buy a car (or any other object) and sell it at a profit. He'll learn how to buy from people needing to sell and sell to people who need to buy. He'll also learn how to cut his losses when he made a mistake and be patient when he knows he is right. Those same skills will help a trader identify when a market is underpriced or overpriced so that he can buy low and sell high or the reverse. The rest is simple. Create or use the available tools and techniques for risk management and market entry and exit and go to work buying or selling. I think learning how to trade in the markets is suicide or you will waste a whole lot of time.

 

Some very good points but learning to trade in the markets is essential imo.

[Seeker 11]

Theoretical question and wanted to get everyone's thoughts.

 

Can we assume a system with a significant statistical trading edge will naturally bring out the "mental" edge required for trading?

 

Or is that question too simplistic?

 

I don't believe so, mental must come first. Because unless the trader is trading the system, he will get results from another system, i.e. the system with a trading edge is actually not even relevant unless he can trade it. The system he gets results from will probably be a losing one.

 

Now if he can trade the winning system as it should be traded then he already has the mental side sorted and the question is moot.

[SIUYA 11]

Theoretical question and wanted to get everyone's thoughts.

 

Can we assume a system with a significant statistical trading edge will naturally bring out the "mental" edge required for trading?

 

Or is that question too simplistic?

 

its a good question...and there is no simplistic answer.....but if pushed I would answer - no

 

Reason - its too simplistic:

 

most statistical edges are probably at best temporary.

just because you give someone a 'tool' does not mean they will be able to use it skillfully. (think of two people with identical training in using a car, sometimes you are better understanding not that there is a statistical edge but where that edge comes from)

There is natural talent involved (be that intuition or a better mathematical analytically focused brain)

one persons statistics is another persons lies

People also have different motivations, expectations and desires to then tinker (improve or destroy)

People have different in built risk mentality. This also applies to different ideas of value - (eg; whats the value of a $1 to someone who has $209k, or someone who has $200m)

(this also would depend on the persons age, demographic, standing in a society etc, and to even think you could get identical test subjects to compare this would be extremely rare and could only be generalised)

 

There is also the persons attitude to luck, their levels of stoicism, and ideas of ego etc etc.

 

I think it has been shown that even with trading systems, even when they were working (think Dennis and turtles) people will respond differently to them, and if anything its that age old thing of trading revealing a person, rather than a person revealing their trading ability.

[Enigmatics 10]

One of the primary reasons I brought this is up is because of a conversation I've been having recently with someone in my life who is of major influence. He has routinely made it clear that he believes "this trading thing can't be done." He knows of all of my trade executions, the price targets and the stops. At the end of the day though, he cares not about what those stocks did. He only cares about the bottom line and what my performance was.

 

Not once has he said to himself, "Hmmm he seems to have a knack for target selection, so why is he still having troubles maximizing his system?" He proclaimed if I had a bonafied system then I wouldn't be having those issues. I felt that statement to completely naive. I tried to explain the nature of non-chart related influences that can wedge their way into the psyche of a trader. You know things like time opportunity costs (needing to hit the monthly nugget), adequate reserves, a previously conservative relationship with money, etc. etc.

 

He simply thinks all that other stuff is nonsense.

[Seeker 11]

One of the primary reasons I brought this is up is because of a conversation I've been having recently with someone in my life who is of major influence. He has routinely made it clear that he believes "this trading thing can't be done." He knows of all of my trade executions, the price targets and the stops. At the end of the day though, he cares not about what those stocks did. He only cares about the bottom line and what my performance was.

 

Not once has he said to himself, "Hmmm he seems to have a knack for target selection, so why is he still having troubles maximizing his system?" He proclaimed if I had a bonafied system then I wouldn't be having those issues. I felt that statement to completely naive. I tried to explain the nature of non-chart related influences that can wedge their way into the psyche of a trader. You know things like time opportunity costs (needing to hit the monthly nugget), adequate reserves, a previously conservative relationship with money, etc. etc.

 

He simply thinks all that other stuff is nonsense.

 

I agree with him. It is nonsense.

 

I don't agree with him that it can't be done, because I know that it can be, and is being done.

Edited December 14, 2013 by Seeker

[Enigmatics 10]

I agree with him. It is nonsense.

 

I don't agree with him that it can't be done, because I know that it can be, and is being done.

 

And it's nonsense because ......

[Seeker 11]

What matters is the bottom line over a large enough period of time. You're making money, or you're not. The market is dishing out the truth to you. It can't be argued with.

 

So it is nonsense because it is an excuse. And an excuse doesn't turn the truth around and it doesn't help you grow and improve.

 

Would you prefer I say that your friend (who is more objective than you on this) is naive? Would that make you feel better?

 

Sorry if I sound harsh, but you did ask for opinion.

[SIUYA 11]

One of the primary reasons I brought this is up is because of a conversation I've been having recently with someone in my life who is of major influence. He has routinely made it clear that he believes "this trading thing can't be done." He knows of all of my trade executions, the price targets and the stops. At the end of the day though, he cares not about what those stocks did. He only cares about the bottom line and what my performance was.

 

Not once has he said to himself, "Hmmm he seems to have a knack for target selection, so why is he still having troubles maximizing his system?" He proclaimed if I had a bonafied system then I wouldn't be having those issues. I felt that statement to completely naive. I tried to explain the nature of non-chart related influences that can wedge their way into the psyche of a trader. You know things like time opportunity costs (needing to hit the monthly nugget), adequate reserves, a previously conservative relationship with money, etc. etc.

 

He simply thinks all that other stuff is nonsense.

 

There are multiple issues/points raised here.....

Your friend is right - ultimately the bottom line is all that counts over the longer period of time, and that the rest could be classed as merely excuses.

.....however, that does not mean he is right and that if everyone had a bonafide system then there would not be issues. It is finding solutions to the issues rather than excuses that separates many.

 

Your friend is also coming from a belief that it cant be done and hence this clouds the rest of his analysis.

 

......

this raises the old age issue of passive v active market participation and if people believe that you cant beat the market then as far as I am concerned you dont need to say/hear anything else. Otherwise you will simply be looking for evidence to confirm this and then you should be happy to accept the market results.

They should then not feel qualified to offer advice to those who choose to take a different path.

So for him all the other stuff is nonsense because he does not believe you can beat the market.....so thank your friend for his input and move on. spend your time working out if you are making excuses, or not finding solutions.

.......

for me as well this then leads to expectations.....and do your expectations match with reality. You friend expects it cant be done. What do you expect and is it worth it to pursue it and find solutions?

.......

The other issue raised he is that about automated/systematic trading v discretionary.....there are big difference between having a system in one, or a system in another and each has its own problems/issues and solutions.

[johnw 10]

IMO, trading is all about winning

 

Statistical edge .. mental edge are components and very important components indeed,

but without a Winners attitude they are incomplete.

 

Winning is a habit,it is attitude, it is a belief...

You win because you are a Winner.

A Winner has the mental edge and that in turn develops the statistical edge.

[Seeker 11]

I think the most important thing for progress is to not argue with facts.

 

Opinions abound and we all have plenty, but the facts are what count. If you're trading and losing, that's a fact. Your opinion that it is due to psychological issues is not a fact.

[wmck6167 10]

In this interactive system, in my opinion, everything is results of interacted. Even there is a truth (or fact), but you may still need to consider the interactive responsive in this interaction system. (Kinetic effect). Developing edge from the market is less superior than have mental edge first before going to the market, it coming from the wisdom of an old book.

 

This kind of edges management shall be different from Mr. Buffett and Mr. Livermore. Is there difference among interaction between personality and market? Just like the management style in different successful business? Regarding to the profit, is current profit equal to future profit? current risk equal to future risk? The battle field is on current or on the future?

 

I always admire Mr. Buffett can tap dancing to work and with righteous life style.

But, I did learn a lot from your valuable opinions. Cheers.

[Djim 10]

Enigmatics, I believe I am in a similar situation: my system (executed well) produces better results than I produce when using it. Thus, my conclusion (opinion, theory, what have you) is that the problem is me, not the system. That being said, I break my own rules for a reason, so my solution is to

 

(a) examine my system and its results so that I am willing to believe in its effectiveness over time, and

 

(b) single out particular problems (behaviors) that I have trouble with and work on replacing those behaviors with better ones.

 

My broader system includes me, and it clearly still needs work. In answer to your original question, it seems to me that knowing, deep down, that your system produces a statistical edge provides a psychological edge as well.

[Enigmatics 10]

IMO, trading is all about winning

 

Statistical edge .. mental edge are components and very important components indeed,

but without a Winners attitude they are incomplete.

 

Winning is a habit,it is attitude, it is a belief...

You win because you are a Winner.

A Winner has the mental edge and that in turn develops the statistical edge.

 

 

See I believe this plays a major role. Lack of confidence in oneself in life in general is naturally going to attempt to seep into one's trading ..... regardless of statistical evidence. Remember, we're still dealing in probabilities, not "certainties". So it can be easy for someone to slip into the "Well I got my signal, but what if this is one of the ones that doesn't work?". This is especially true in situations where we layer arbitrary time constraints (i.e. paying oneself at the EOM), if we have limited non-trading capital reserves, etc etc ...... and I just think it's easy to talk ourselves out of a trade even if the numbers are in favor of it.

[sweet n´sour 10]

So it can be easy for someone to slip into the "Well I got my signal, but what if this is one of the ones that doesn't work?". This is especially true in situations where we layer arbitrary time constraints (i.e. paying oneself at the EOM), if we have limited non-trading capital reserves, etc etc ...... and I just think it's easy to talk ourselves out of a trade even if the numbers are in favor of it.

 

This simply sounds like you are not enough capitalized for your trading system!

 

Your system like any other system has losers and drawdowns. Now to trade the system effectively you have to have enough capital to backup the losers and drawdowns.

 

If you have enough capital than there should be no mental edge problems.

 

If you have not enough capital then trading your system becomes a gamble, because the normal losers and drawdowns have a good chance to blow up the account. And you know that. So you try to make your system better as you go with trying to skip the loosing trades. But this does not work by definition !!

 

So the actual mental problem is: why are you trying to trade a system, that needs (!) more background capital than you have?

[Enigmatics 10]

This simply sounds like you are not enough capitalized for your trading system!

 

Your system like any other system has losers and drawdowns. Now to trade the system effectively you have to have enough capital to backup the losers and drawdowns.

 

If you have enough capital than there should be no mental edge problems.

 

If you have not enough capital then trading your system becomes a gamble, because the normal losers and drawdowns have a good chance to blow up the account. And you know that. So you try to make your system better as you go with trying to skip the loosing trades. But this does not work by definition !!

 

So the actual mental problem is: why are you trying to trade a system, that needs (!) more background capital than you have?

 

I think you pegged me pretty well. I won't lie. I'm still not comfortable with the amount of non-trading reserves I have. I'm prone to letting it seep into my positions when they're taking longer than I'd prefer.

[TheRumpledOne 14]

Define MENTAL EDGE.

 

What do you mean by MENTAL EDGE?

[Patuca 13]

Define MENTAL EDGE.

 

What do you mean by MENTAL EDGE?

good question. Can mean many things to many people in many worlds. So many different w.v. ..........

[Patuca 13]

IMO, trading is all about winning

 

Statistical edge .. mental edge are components and very important components indeed,

but without a Winners attitude they are incomplete.

 

Winning is a habit,it is attitude, it is a belief...

You win because you are a Winner.

A Winner has the mental edge and that in turn develops the statistical edge.

Does this look like a winner?

[Enigmatics 10]

Define MENTAL EDGE.

 

What do you mean by MENTAL EDGE?

 

In this case, the "mental edge" I'm referring to is that mindset where you're confidently trading your method and outside factors are not affecting how you execute. You don't meddle. You just let each and every trade do it's thing win or loss.

[Guest OILFXPRO]

The mental edge is the mindset to execute the statistical edge correctly.The human brain is wired to destroy the statistical edge ,this is the main reasons why most traders will turn a winning strategy into a losing strategy , on live accounts.

 

Give a wining system to 100 traders and 99 percent will lose due to impatience , lack of discipline , greed , fear , emotions. ,biases , lack of certainty. , inability to trade with uncertainty ,revenge trades , monkey brain responses , stress responses , lack of knowledge experience and a dozen other phsychological reasons