174 : How to find statistical edges to improve your trading – Scott Andrews

In Better System Trader episode 174, Andrew Swanscott interviews Scott Andrews from Investiquant about finding statistical edges to improve trading. Scott shares insights on identifying potential edges in various markets, emphasizing the importance of market observation over constant trading. He introduces the "three C's rule" (causative link, context, and confirmation) for distinguishing genuine signals from noise and using T-scores to monitor edge health. The discussion covers managing drawdowns, capital allocation, edges in stocks, building pattern libraries, ensembles versus patterns, day trading edges, trade context, and sample size. Scott advocates for diversification across multiple strategies and stresses the significance of understanding and being comfortable with drawdowns, viewing them as a "gateway to profits." He also shares his "speed bump rule" for managing risk during drawdowns and encourages traders to focus on long-term gains by identifying edges that work consistently over time.