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Personally I like this idea very much, since I've been using a very similar concept (but quite different method) in order to measure the edge value of a system for my own evaluation. I guess the key point would be making a comparison against a benchmark chosen for a pre-defined purpose...

There are two issues: How to determine YourExpection, quantitatively? It seems illogical that: With a fixed value of YourExpectation, a (poor performance) system with a smaller (or negative) ExpectedValue would produce a higher/ better EdgeValue.

So you are saying actually there is a measurable and quantitative value for an edge. Perhaps I wouldn't mind to keep trading a system even if it produces a small negative value when comparing to an expected value which is an extremely huge amount.

Thanks Toe for your contribution and independent thinking. :)

Q "Do Domestic Investors Have an Edge?" http://www.nber.org/papers/W10502 ---- Abstract ----- We investigate whether domestic investors have an edge over foreign investors in trading domestic stocks.Using Korean data, we show that foreign money managers pay more than domestic money...

Probably that would be the right direction to define an edge quantitatively. Thanks.

Personally I like this approach and I think that could be practical, useful and helpful to find and (I think, indirectly) define an edge which has been discussed on ET so many times so far. Adding significantly more capital on top of an initial one would be relatively safe and feasible by...

Q http://www.cbot.com/cbot/pub/page/0,3181,1070,00.html Strategies * Using Volume at Price to Trade Gold 05.25.2006 ... * Buying and Selling the Market with Long and Short Futures 08.23.2000 UQ Obviously there are so many potentially profitable...

How about MaxDrawdown>90%, still calling an edge and keep trading the system with additional capital by 20 times? :confused:

So with an initial capital (say) $1,000, you do believe making $1 after making 1,000 trades is an edge. Do you have the required confidence good enough to increase trading capital by adding (say) 20 times (i.e. $20,000) of initial capital in order to make more profits with this proven edge...

Are you saying something like this: EdgeExpectancy=WinProbxAveWinAmount - (1-WinProb)xAveLossAmount WinProb=WinTrades/TotalTrades TotalTrades>N N=Any number greater than say 1,000 (Whether that should be simulated or actual?).

Can we measure Edge? Do you have anything in mind that could be used to measure an Edge with quantitative terms? Any pointers? All comments would be appreciated.

A couple of Google finding: "Trading Maximum Drawdown and Options on Maximum Drawdown" http://workshop.mathfinance.de/2006/papers/vecer/slides.pdf "Active Management of the Maximum Drawdown" http://www.stat.columbia.edu/~vecer/maxdrawdown2.pdf

Consistency with positive or negative expectancy? :D

Did you use any TA? What indicators you used?

Obviously someone would disagree. :D

Here is a newbie's dream: If I had to do it all over again.... I would keep all the profitable trades, and fade all the losing ones. :cool:

So you truly believe Soros would tell you his truth (in this case, Don't follow my short trades.), as Usual!?

LOL, thanks for that! :D

My newbie opinion is that don't use a timeframe which is not required/ necessary to use. And use only the timeframes that are useful and relevant for making profitable decisions. PS: I'm a good student of Jack.