Have you lost your edge?

[00:00:00] All right, I got Brent on here with me today and I have a younger trader who I've been talking with who's become a friend of mine who listens to a lot of the podcasts and had a great question. And I haven't, I should have answered this a long time ago because it's, for some reason, this has never really come up. But like, how do you know when your edge is, however you define that, right? Edge is kind of a funny thing. It could be like, I get up every morning at 4 a.m. and I'm super curious and I love what I do.

[00:00:28] And sometimes that's an edge or I actually have a statistical edge. Like it's a lot of different things, but what happens when you lose your edge and how do you know when you lose your edge? So I guess, Brent, I guess I'll shoot over to you and see what you're going to say about this. Yeah, I mean, like you said, that's a really, it's kind of a gray area, right? Like, and defining your edge is not always the easiest. I know everybody thinks they have an edge and everybody's edge is a little bit different.

[00:00:58] And sometimes it's really hard to like pinpoint what exactly it is. But knowing when it's gone is usually like, when the things that you've been doing in the past, at least to me, this is how I perceive it. It's like the things that have always worked for you in the past are no longer working.

[00:01:19] I mean, I feel like that's the most simple way to tell when things that like, let's say you, let's say your, your edge is like you have, you have found a specific chart pattern or some, some kind of thing that you notice in the market. Maybe it's a divergence between two or whatever. And it's your most reliable trade.

[00:01:43] Well, when things start not proceeding the way they do for, you know, an extended period of time and you keep getting worse results, I would say that that's my definition of when you've lost your edge. Is that kind of what you're? Yeah. I mean, I'm going to, my, what I'm going to say is two different things and it kind of almost like a sandwich, like yours is like a sandwich in the middle of mine.

[00:02:08] So my first thing would be that there's a feeling inside of me, like a, just a, like a crappy feeling about what I'm doing. Like, I don't feel connected to what I'm doing anymore. I don't really like what I'm doing. I don't enjoy what I'm doing. I used to, I, maybe I don't. And that, when that leaves me, it's like, usually that means I've been losing money, but oftentimes because you're making a lot of money, usually you're having fun. But so I really pay attention to feeling dissatisfied for a long time with what I'm doing.

[00:02:35] I know that's not like very left brain or statistical or, but that's one thing I really pay attention to because it means my life is off track in this, this department. And the second thing is like, I never did a lot of this because it's hard when you're a discretionary trader to backtest everything. So you kind of like the way you described it was really good. I thought, but if you have any kind of a system at all, you can backtest a little bit and say like the drawdowns, like you and I were working on something together and we had done a bunch of backtesting and it looked amazing. And we started doing it and we had some initial success.

[00:03:04] And then it kind of, we got to the point where we got lucky and made a little bit of money doing it. We got to the point where we were like, oh shit, this drawdown we're having is out of bounds. Like it's worse than any drawdown that we thought by 50% and it never should get to that point. And that's when we realized like the edge on this project we're working on is busted. It doesn't work anymore. So it went through the, it went through all the bounds that we had. So I think if you can figure out where the bounds are of reasonability, when you blow through it, it's like, man, this just doesn't work anymore.

[00:03:31] And it might work again, like in a year or two years, like oftentimes they come back. But I think that's an important point too. I think that's a great point, Brad. Yeah, when your losses are much larger than you ever thought they would be or than they should be compared to what you're backtesting and what your expected results are, that's a huge red flag. Yeah. So like I don't know if you can always, I don't know if you can always backtest.

[00:03:59] So we basically came up with like, if you can backtest and it's out of bounds with what you tested, your edge is gone. If you feel like shit every day, just because you don't feel connected, like you want to do growth stocks with a two week timeframe and you're in there day trading oil. Well, maybe it's a bad fit for you or whatever edge you had is gone or I don't know.

[00:04:19] I mean that's – or what you're saying is that like I wait for these like morning opening range breakouts or divergences or I like the crop reports when this and that happens and all of a sudden it just doesn't work anymore. Yeah. And I think you made just a fantastic point about when you feel like shit, when it just doesn't feel right inside. Like you're like I'm not – like trading is one of those jobs that should be giving you joy. It should also be giving you stress.

[00:04:49] I mean that's just the nature of the business. But unless you're – if your reaction to that is like, yeah, this isn't fun. I'm not – it's usually because something's off. Yeah. And, you know, I'll say on that too, like you've been doing this even a little longer than me and we've both been like over 20 years or 25 years or whatever. I'm like 22 or 23. You're probably like more than that. And I don't know about you but I've always loved it and – but I've had times where I'm like I don't ever want to fucking do this again.

[00:05:19] Like you have a moment where I'm like I don't want to get out of bed and look at this anymore and I just hate this right now. And you have to have those – anyone who says they don't have those times is a bullshitter. Yeah. You're completely full of shit because it is a rough, rough business and I have yet to meet anybody who's had success the entire time and not gone through periods of struggle.

[00:06:10] Yep. So it's getting destroyed but you don't want it financially to get destroyed too. I mean a little bit you always are going to be but it's like can you – there's a lot of discussion which is a different podcast topic about giving up your size or not and I just think it depends. Well, that's the humbling part and it's a really hard thing for a lot of people to do is to accept the fact that this isn't working or this is wrong.

[00:06:35] You know, like because it's basically admitting defeat and that's – people don't want to do that. I don't want to do that. I don't think you want to do that but being able to do that and say, all right, I need to go back to the drawing board and figure out how to either make this better or to find something else. It's hard but if you're able to do that, you'll definitely be able to find another edge. Yeah. I think that this is a good – let's just stop it here. I think it's good. Cool. All right.

[00:07:05] Take care. All right, bud. Okay. Bye. Bye.