EDGE Feedback Loop

The number one goal for traders should be to optimize their edge and then further deploy their backtested strategy to extract profits from the market. It’s not an overly complicated thesis, but in the real world, there are many external factors that can influence trading.

Examine: Scrutinize market conditions, trading data, and signals from your current trading strategy. Leverage insights from your mentor and continuously seek new knowledge to improve your understanding of the market.

Deduce: Analyze the collected data, mentor’s guidance, and your own learning to evaluate the effectiveness of your trading strategy and its alignment with your goals. Develop mental models and enhance your understanding of the market based on this information.

Grind: Embrace an obsessive approach to refining your trading strategy, making informed decisions about entering or exiting trades, adjusting your strategy, and seeking further guidance from your mentor. Factor in both quantitative trading stats and qualitative input from your mentor and accumulated knowledge.

Execute: Implement your decisions in the market, applying the refined strategy or making modifications based on your continuous learning and mentorship. Iterate through this process hundreds of times, documenting your actions and their outcomes, to help with future evaluations and improvements.

The EDGE Loop emphasizes an iterative process that allows day traders to continuously learn, adapt, and improve their trading strategies by incorporating feedback from trade data, knowledge-seeking, and an obsessive approach to achieve better results over time.

Daily EDGE Loop Example

Running these processes consistently day after day builds a catalog of pattern recognition in your brain. In turn, you will effortlessly enter a trade based on pattern recognition and conviction due to the number of times you have recognized the pattern.

Here is am example EDGE loop one could use for day trading. Remember these need to be build upon your trading style and strategies. Day trading EDGE loop will vary significantly from a Swing, or position traders.

Premarket EDGE Loop
  1. Daily Long or Short Bias – Dictated by overall market conditions.
  2. Assess buy-the-dip and breakout failure possibilities.
  3. Scan for gappers and read news.
  4. Build a watchlist of 1-3 stocks.
  5. Mark levels or set live orders depending on bias based on market conditions.
  6. If no favorable gappers, use scanners and screeners to find imbalances in opening session.

Morning EDGE Loop

  1. Scan for stocks at 100%+ of Average Daily Range or Average True Range (preference).
  2. Check for news.
  3. Determine if valid mean reversion or trend opportunities exist.
  4. Set alerts for levels with consolidation of support or resistance.
  5. Make a watchlist of these stocks for tomorrow’s open.

Mid / End Of Day EDGE Loop

  1. Run scan to filter big movers for the day.
  2. Analyze missed opportunities: volume, price, float, speed of move, time of day, catalyst.
  3. Ask why you missed these and how they moved.
  4. Backtest live and evaluate entries: good or bad? Describe why.
  5. Develop strategies to capitalize on these moves next time.
  6. Save A++ setups in a notebook (e.g., Evernote.com).
  7. Create new iterations of scans based on your observations.
  8. Reflect on productive feedback and eliminate unnecessary feedback.
  9. Ask where the edge was in each trade.

Daily Score Card EDGE Feedback Loop

  1. Study and analyzie daily trades
    1. Grade trade 1-10
    2. Physically write in notebook why you entered, why you exited, how you sized
    3. Did you stick to your rules?
    4. Did you have FOMO
  2. Rate Overall Mood Feelings
    1. Good sleep last night?
    2. Healthy diet?
    3. Did you excersice
    4. External stressors

The EDGE Feedback Loop plays a crucial role in training the brain to recognize patterns and opportunities in the market. This iterative process allows traders to continuously adapt and improve their strategies through self-reflection, mentor guidance, and learning from both successful and unsuccessful trades. The importance of tweaking and making iterations to your approach cannot be overstated, as these adjustments are essential for achieving desired results. By diligently following the EDGE Loop, traders can refine their decision-making process, cultivate an enhanced understanding of the market, and ultimately optimize their trading performance. The consistent practice of this method will enable traders to make better-informed decisions, helping them reach their profitablity goals.