How To Know If You Have An Edge Or Whether It Still Works?

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.

Exercise

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

Conclusion

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!!

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Quick answers

How do I know if my trading edge still works?

Review your trades in batches of 20. If after 20 trades your results look very different to what you've tested historically, that's your cue to work out whether it's you, a missing piece or the strategy itself.

Why use a 20-trade sample size?

It's just large enough to tell you if your system is working, and just small enough that it won't destroy you if it isn't. It also breaks your trading into manageable chunks so you're not overwhelmed by the idea of huge sample sizes.

What should I do if my trading strategy stops working?

Don't jump straight to a new one. First find out what the problem is, whether it's your execution, something missing from the plan, or the strategy is just obsolete. Then make the adjustments and run another 20 trades.

Does reviewing trades in batches help with trading psychology?

Yes. Committing to take every setup for 20 trades, whatever the outcome, keeps you focused on the process instead of each result. It also helps you catch problems early before they get out of hand.

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Wishing you a profitable trading week.

Alan aka The Divergent Trader

Want more like this?

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Two more ways I can help, whenever you're ready:

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• Read The Blueprint To Trading Psychology, my short book on why you break your own rules and how to stop.

About Alan

Alan Edward (The Divergent Trader) is a full-time trader. It took him about five years to get consistent, and he now teaches a simple, low-screen-time way to trade, plus the mental side that goes with it.

Trading carries a high level of risk and you can lose money. This post is for education only and is not financial advice.