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Trading at the Margin

Humans naturally tend to make decisions at the margin. We do not ask "should we eat", instead, "how much should we eat?"... "another spoon full?". This tends to serve us positively in many areas of life. We are constantly re-evaluating if the benefits received by what we are doing outweigh the costs and use this information to make decisions.

What is the appropriate manner to apply this level of thinking to our trading?

Is the marginal benefit of holding this contract greater than the cost of flattening it? (Potential upside discounted by the probability it reaches target MINUS potential downside/stop/opportunity cost, emotional, mental, etc.)

In this case, thinking at margin makes sense. We are looking to be continuously recalculating odds and managing our risk accordingly. Granted, it is an imperfect art.

Is the marginal benefit of taking this next setup setup worth the cost?

For most traders, who have historical win rates below 50% and only achieve positive expectancy through asymmetry, this marginal benefit is not worth the cost.

If you were only allowed to take 1 trade, then the vast majority would lose money. For most, edge comes with sample size. Just as a casino cannot operate without a constant stream of bets, neither can the trader.

You win some, you lose some.

This is the attitude that must be taken when thinking at the margin for your next trade. The benefit cannot be tied to PnL outcomes, instead, the benefit is the ability to add one more iteration of the strategy to your sample size.

In the short run, trading is random, in the long run, the expected value should result.

Humans think at the margin, yet, there are many circumstances where traders should think in more holistic terms. This wide framing is how one can tackle risk aversion.