Alpha Mail - #039 - EmperorBTC
A recurring theme in many interviews is the idea of 'beginner's luck'. Novice traders who through luck or circumstance made money initially, only to give it back (with interest) to the market.
It's a phenomenon rooted in poor risk management, market cycles and the Dunning-Kruger effect. This week, EmperorBTC shares his thoughts on how he broke out of that feast/famine cycle and the systems he put in place to achieve sustained success.
On the technical side, Jim Talbot examines weekly open drives and probabilistic thinking in his article "Expected Value and Contrarian Thinking".
Enjoy!
alpha
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Interview: EmperorBTC
Emperor shares his thoughts on why most traders focus too much on hit rate, how smaller position sizes changed his fortunes and why trading is a particularly misleading activity for novice traders.
Jim Talbot: Expected Value and Contrarian Thinking
New monthly opens are a gift for me. As someone who likes to take positions on the other side of the popular trade, monthly opens provide some of the highest EV (Expected Value) trades available, using the new open as a pivot.
Before the monthly open my first objective is to determine my target. Where is there liquidity and inefficiency? In this case, the weekly open starting flat is a level of interest.
Whenever a weekly candle opens with a drive my bias immediately turns to “how can I fade this?” based on the high probability of trading either side of this level, the probability is over 80% based on backtesting previous weeks.
With the anticipation of a new monthly candle to position into, the next stage of the setup is to determine a level and wait for a trigger.
Marking the initial weekly high, my plan was to position on a sweep of these highs using RSI momentum drop-off as the trigger.
Now positioned and after a good initial reaction, it's a case of defining my invalidation and waiting for the trade to play out knowing the odds of trading below this weekly open are skewed in my favour.
Graphic: #151
Trades often take time to play out. Don't try to force your expectation on the market. Submit to the reality that there will likely be a lot of waiting.