I dont think enough people understand, talk about, or even know what the term "Alpha leak" means. I think too many are focused on how much money their peers are making, but dont really know how to capture those results for themselves. I think if we genuinely looked to improve, we would realize that the strategy actually means very little.
Alpha is "edge", plain and simple. Its the ability to outperform the market or even strategy through skill. A leak occurs when that edge is present and correctly identified, but the realized P&L is significantly lower than the expected P&L due to emotional friction or poor management.
- Execution Leak: Slippage, poor limit order placement, or paying the spread unnecessarily on high-frequency entries.
- Management Leak: Cutting a winning trade too early (premature exit) or failing to scale into a high-conviction position.
- Information Leak: Signaling your intent to the market before your full size is filled, causing the price to move against you before you are positioned.
In the interest of transparency, I will give you one of my plays and how I failed Management leak. Below is a snip of Friday, early breaking news.
The play is a Slingshot on breaking news, where the fast news causes a rush of buying/selling, and algo liquidity is instantly pulled as dealers avoid being run over by the impulsive move. This creates what the ICT boiz would call a "FVG", but you would actually not see it on a chart because its instantaneous. Price retraces back into the gap (usually 50% of the move), and finds immediate aggressive buyers (or sellers if a flush). This creates an organic lifting of price as all sellers attempt to get out b/e or with a small loss, and aggressive buyers step in to defend the breakout.
In the example below:
- Breaking news (Iran war) at 6:50 am caused an immediate impulse reaction.
- I set an entry order at 7274, roughly the 50% mark from the impulse between 7271 and 7276.
- Price filled about 2 min later at 7274. Stop set 3 points below with a 10.5 point target. Price touched 7273.25 and pivoted for continuation higher.
- Price obliterated my price target (7284.5) around 6:55 am, and we are officially in "blue skies" as we crush all time highs. I set my target to grab that gathering of liquidity between 7281 and 7284 on the heatmap.
- Because we had no resistance holding us back (7225 SPX JPM collar cleared) and no large levels of gamma, we were fairly clear to target the next psychological level on ES or SPX (7300). However I had already lifted off at 10.5 points, and I missed a total MFE of 26 points on the move. (7274 entry, 7284.5 exit vs 7300 max profit).
Hindsight is 20/20. However its fairly important to go back and review what you could have done better, or should have done better. Reviewing the tape takes you from moments of "I should have held" and transforms them into valuable questions such as "What could I have done better to improve this play?"