The Risk of Trading: Mastering the Most Important Element in Financial Speculation

CHAPTER 5

Embracing a Culture Of Analytics

One of my favorite parts of this business is that of having the opportunity to help others improve their A game by transitioning their focus toward risk analytics. Common questions I get from fellow traders are, “Is there any part of trading that incorporates intuition into the equation?” and “Is it truly only about the numbers?” The answer, of course, is no. If it were only about analytics, every trader, regardless of experience level, would be on an equal playing field. Trader A with 15 years of market experience would have the same overall edge as the newbie who just opened his or her first account.

While this book focuses on data analytics as a method of optimizing risk and success, it would be demeaning to the best traders to say that developing a feel of the market is worthless. If you have extensive experience in trading, you recognize that sixth sense that pops up right before a statistically perfect setup telling you not to participate. The data nut that I am, I attempted to track my intuition-based trades that in some way altered my decision to execute a +60 percent edge trade-up. During that time, I was 54.5 percent correct in making the right decision. This was fairly respectable given the fact that a majority of them were bypassing valid trades with a defined edge. Similar to someone who stands on a soft 16 with a blackjack dealer ace showing, sometimes there is that signal that comes from that other powerful spreadsheet ...