"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 becoming success.
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
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 exception.
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 system successes.
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 You.