"The Trading Edge" is
the latest book published worldwide which is written by
a Hong Kong trader and system developer, Rickey Cheung.
In the book, he will share his trading edge and the path
Q1: Statistics show that
only 5 to 10% of those who trade are winners; the other
90% to 95% are losers. How would you rationalize this?
RC: Yes, you are correct. It is
a fact in these past many years that only 5% of traders
are winner. The reason is a small group of traders has
a trading edge over a majority group of traders. Anyone
who has an edge over the others will win. Casino always
wins because they have an edge.
The majority of people start trading
with no education and practice including myself. Only
through education (attending seminars, reading, or self
learning) and practice, one can develop this trading edge.
With the trading edge, he can trade to success. Many have
traded for years, they acquire some knowledge and experience
during the process, but they never take the step to develop
their own trading edge, so despites years of trading,
they still cannot win. This is a zero sum game and traders
are competing with each other, without an edge, so one
cannot be a winner.
If traders start off with education
and practice, then develop their own trading edge before
they start trading, then I think there will be at least
40 to 50% winners in this money game. But people just
rush in and trade and want to make profit, and end up
losing a lot more then they anticipated. I myself am no
Q2: the conventional trader
follows trends, cuts losses quickly and rides with profits.
Is this all there is to it?
RC: I agree that any successful
trader must follow the above three cardinal rules. If
one did the opposite, that is not to follow trends, let
losses ride and cut profit quickly, he will loss big.
The questions are how to follow trends, when most of the
time once you follow, the market reverses. When you follow
the reverse trend, the market makes another reverse. And
if a trader cannot follow trend or reverse trend to profit,
he will not be able to cut loss quickly and ride with
profit as there is no profit to ride at all.
Only with a definite trading edge,
one can catch the trend or reverse trend at the earliest
stage with high probability of accuracy, then he can profit.
With the trading edge, it brings profit and confidence,
this make the trader to cut losses quickly and ride with
profit more easily and not the other way round.
Traders should follow the above
three rules. He can only be able to practice these three
rules when he has the trading edge. Please start with
develop your trading edge through education and practice.
One will be able to follow the rules at ease.
Q3: What are some of the
common mistakes often made in trading?
RC: The common mistakes are just
doing the opposite of the three rules we mentioned above.
When they see the market is up, they feel the price is
too high and if they run short, they seem to be smarter
then the others or even the market. The usual market will
continue to up and the trader who thinks himself smart
will lose. When he starts losing, he may add more contracts
in the losing position, expect once the market goes his
way, he could breakeven or have profit, and ended up with
big loss when a market does not go his way. Occasionally,
when he did it with small profit, he will be happy and
take the profit rather then ride with it. "Money in his
pocket" will make him happy even if its small profit,
in fact, the broker will be happier than him.
Any traders with no exception
will make the above mistakes many times. Only after he
or she develops their trading edge, will he or she make
less and less mistakes. Doing the right things will come
more and more.
It's interesting that people like
to ask how many years of trading experience you have?
People will reply that they have ten years or more trading
experience. Both the questions and the reply are irrelevant.
Even one trading for ten years, he may just get ten years
of losing experience. I think it will be more appropriate
to ask, how many years of wining experience do you have?
Do you agree with me? I think you will. Thanks.
Q4: What gives someone
a trading edge?
RC: Only through education and
practice, will a trader be prepared to work hard and find
ways to verify his strategies, then he will find his trading
edge. If the trading edge cannot be verified or repeated
by others, he does not have a trading edge. My approach
is very scientific, I observe the market, collect the
data, take notes, and if I discover certain strategies
or patterns that seem to work well, I program it and put
it under test, backtest and if the result is good, then
I try it out in actual trading. If it continues to work
well, then I will use that particular strategy to trade.
This requires very hard work after market close and also
takes up a good deal of my weekends. One cannot and shall
not practice trading during the trading hours; the practice
is done after market close. The athletics practiced before
and after the competition, not during the competition.
In short, its education, research,
taking notes, thinking, testing and verifying that will
give traders the trading edge. It is a continual process
if one wants to be successful and stay on top. I have
developed many new strategies and systems after my first
Q5: How did you discover your distinct trading system?
RC: My trading system reflects
how I trade in the form of a programmed system. All parameters
are set, when market conditions match the system will
automatically execute the trade. I discovered my trading
edge through observation, thinking, research, testing
and verifying. After this I programmed my system with
my trading edge, the way I trade. It's a continual hard
working process; it does not pop up by itself. The trading
system is a way to verify my trading edge.
Q6: Tell us, in simple layman terms, about this trading system? Can you explain how a trader might use this system?
RC: My trading system is a day
trade system. I program the way I trade with my trading
edge. Users only need to turn on the computer, with the
system inserted in the trading platform, and then it will
execute trades automatically with stop loss presented,
so it will cut losses quickly when the stop is hit. Also
it will move the stop when there is profit, in order to
ride with the profit. The system tries to follow the three
trading rules we mentioned above, automatically with no
hesitation. Then it will close all positions before market
close. A user need not watch the market at all when one
is using a automated trading system.
I program my system the way I
trade. Some developers are very good programmers, and
they will program many trading indicators to make a system.
I do not think this kind of system will be robust at all.
One must have a trading edge, then program it into the
system and not the other way around.
Q7: What kinds of successes has this system provided for you?
RC: My systems verified that I
have a trading edge to trade after I backtest the system
with historical data, and observe its performance in actual
trading; it also gives me confidence to trade at ease
because I know I got the trading edge and system is working
well. It probably will work well for many years .While
I developed these trading systems, it also turns out that
the system also developed my self-confidence as a trader.
Please start developing your own
trading system. You may not succeed within your first
try, but during the process you will learn a lot about
your own trading that you will not notice if you do not
write it down and test it. Developing a trading system
is the most important step to becoming a successful trader.
Q8: What advice could you share with listeners who want to trade successfully?
RC: Anyone who wants to trade
successfully can find their opportunity through education
and practice. Working hard after market is important.
Start your own research, develop your own trading edge,
write a system and test the strategies. Then you will
become a successful trader.
Honestly speaking, I am not good
at programming; I just work very hard in developing my
trading edge. Once you develop this, the rest is easy
and will come automatically. If I can do it, you probably
can do even better then me.
Again, anyone who is willing to
put in the effort will be rewarded accordingly. Thank
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