Largest trading edges are found where? It's all in the scale of time

 

You have edge when:

  1. you take uncrowded trades

  2. that exploit price inefficiencies.

 

Markets are democratic. The majority determines fair price.

But sometimes price trades at a discount or premium to its fair price.

 


This can be due to:

  • A change in the fundamentals (eg interest rate increase)

  • An absence of traders due to a regional holiday (eg. Chinese New Year)

  • etc



When something is expensive or cheap
relative to its fair value:
It doesn't remain so for long.

Because traders quickly act on inefficiencies to make a profit.

 

Here's the deal:

the biggest inefficiencies take place in the shortest periods.

Another way to say this?


Your largest edge trades occur in the smallest time windows.

 

 

Get this...

Look at the Market Wizards (books 1,2,3 and 4).

The best traders are wrong half the time.

 

How do these traders win?

By having miniature risk per trade

 


Let me explain:

the following diagram has two axis

time and heat

 

  • The "taller" the box the greater heat taken on a trade

  • The "wider" the box the longer the trade takes heat

 

heat refers to your position trading at a worse price than your entry

Do you like taking heat on trades?

No of course not

 

Well then:

if unfair prices only last for a moment

trading unfair prices = you won't take heat for more than a moment

 

And if you enter at an unfair price

you know the market will act immediately

and the price won't continue getting less and less fair.

 

In yesterday's trades

the yellow boxes show you

 

  1. how much heat the trade took

  2. for how long the trade took heat


Ask yourself:
If you took as little heat
for as little time
when you trade;
What would it do for you?

  1. Would your losses no longer exceed your gains?

  2. Would you trade consistently?

  3. Would you feel confident?

  4. Would you feel a greater sense of well-being knowing you've moved on from trading that's painful?

When trading as a business (cashflow)

Can you see how short-term price inefficiencies offer the best edge?

The payoff versus the risk is outstanding because the risk is miniature.

 

Here's the good news:

Half the time you're wrong

Could be your timing or a miscalculation

But the market is quick to act on genuine inefficiencies

 

So if that's not what's occurring

then you know you've made an error.

And there's no need to experience more than a paper cut loss.

 

Okay sounds great

what's the catch?
 

There is no catch.


Competency is transferrable.

The right quality and quantity of guidance has you replicating this.

And it takes far less time than spending years and years failing at trading.

 
 
Adam Fiske