Updated: Aug 28, 2022
In today's blog, I go over a simple method that can help you find out how to know if you have an edge or if it's stopped working...
How To Know You Have An Edge Or Whether It Still Works?
Knowing if your edge has stopped working or even know you even have an edge can be explained simply by just using a 20-trade sample size.
I first came across this method from the great Mark Douglas. He stated that you should always review your trades in batches of 20. This is because it’s just large enough to know if your system is working and just small enough not to destroy you if it’s not working as it should.
So if after 20 trades you are seeing abnormal results to what you have tested historically, you can then begin to work out whether it’s because of you, some missing component or the strategy itself is just obsolete.
Trading in 20 helps think probabilistically
This is especially good for newer traders or when starting a new strategy because once you have your trading plan ready to go aiming to consistently execute your system for 20 trades no matter what the outcome will help keep you focused on the process and not the outcome.
As you have learned previously in the ‘'Thinking Probabilistically’’ section you only know if your edge works in large sample sizes. And the 20-trade sample size is a great way to break down you’re trading into manageable sizes without being overwhelmed about getting to larger sample sizes.
Using this method, you will be able to stop major problems in their tracks before they get out of hand and be able to consistently assess where you are at.
1. Take the next 20-trades no matter what the outcome
2. Focus just on taking every setup that presents
3. After 20 trades review the results
4. If it’s positive and working as it should then continue for another 20 trades
5. If it is not, then find out what the problem is and make the necessary adjustments
A very simple and powerful method to help you stick to the process, be constantly aware and in control of your trading. As well as saving you from wasting any more of your precious time on something that simply does not work.
This simple method can be one of your most valuable tools in your trading so use it and abuse it!!
Wishing you a profitable trading week.
Alan aka The Divergent Trader
''Thanks to The Divergent Trader I now have the confidence going forward
in my trading. I know how to develop my own strategy, test it and understand how the trading game works!
I cannot thank Alan and the team enough.''
- Ben Richardson