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Occam's Razor

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 A close shave. Recently, I found myself working day and night on fine-tuning an exit strategy for one of my day trading systems. Delving into statistical probabilities and portfolio theory can quickly turn into a quagmire of data, models, and losses. One can be tempted to add more and more criteria, rules, and layers to achieve a high probability trading system.This is know in the industry as "curve fitting".  C urve-fitting refers to the process of creating a model that closely fits a specific set of historical data. This can lead to models that perform well on past data but poorly on new, unseen/ future data due to over-fitting. Traders may be misled by profitable back tested results if a model has been curve-fitted. The model may show impressive returns and low risk in back-tests, but these results cannot be replicated in live trading. This is a common mistake that traders make and can be extremely frustrating when a trader curve fits a strategy that produces...
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Should traders fix their weaknesses, or play to their strenghts? Which is more effective to improve trader performance?

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  “Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” - Thomas Edison   Some trading coaches say that we need to eradicate our weaknesses to reach our potential, others inspire us to play to our strengths. So which is it? There are a number for advantages to each approach. Focusing on Strengths Maximizes Potential : By focusing on strengths, individuals can leverage their natural talents and excel in areas where they already have an advantage. Boosts Confidence : Success in areas of strength can build confidence and motivation, leading to further achievements. Efficiency : Time and effort spent on developing strengths often yield better and faster results compared to improving weaknesses. Specialization : In many fields, being exceptionally good in a particular area can be more beneficial than being average across several areas. Overcoming Weaknesses Balanced Skill Set : Addressing weaknesses can lead to a more w...
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Is this the greatest break-out trade of the year?

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  A number of years ago I read a short trading book. Its a very basic book, covering a rather basic stock trading system. It was developed by a guy who was not a hedge fund manager, broker or Wall Street insider, yet it had a profound impact on my trading and beliefs about markets. You can purchase the book here for only a dollar or two: How I Made $2,000,000 in the Stock Market The basic premise is that stocks trade in a range and should only be bought when they break the range or what has become know from the book- a Darvas box. Read more about trading the Darvas box here:  Darvas Box theory NVIDIA soared to another new high yesterday and has been exceeding analyst expectations all year. For more context, read this article: NVDA news article 05/06/2024 Looking at the historical daily chart of NVDA, it may have been a classic Darvas box/ break-out trade. This is text book example of a long term upside break out.   As can be seen from this c...
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