A trading edge is the easiest thing?

Quote from Bolimomo:

The question is: What is an "edge".

To me: an edge is an advantage you have (and that the majority doesn't),
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This is the definition and Buy1Sell2 provided one of the best examples: solid risk management.

That's what the successful trader has that the majority of traders don't have. That's why the majority fail.

All other "edges" pale in comparison.
 
It was mentioned in several posts upthread, that "Trade Management" and "Money Management" (or "Risk Management") are the real edges.

Be honest I am not entirely sure.

I agree that they are the necessary elements of being profitable and trading well. (The basics)

For if they are considered an "edge", it would imply that:

I don't need to study any chart pattern or pay attention to any news or watch what the market indices are doing. All I need is my 3:1 (or 4:1 or 5:1 or however you define yours) Reward:Risk ratio in any trade. So... I roll a dice or throw a dart on a Wall Street Journal on which symbol to trade. Then I roll a dice again to decide which side to be on (long or short). Initiate a trade. As soon as I enter my trade, I just set up a bracket order: (Assuming long) Up $3 I sell, down $1 I stop. When I am out, I repeat this cycle again. Throw the dart, roll the dice.

And over time... because my RR ratio of 3:1/4:1/5:1... I will have positive expectancy.

Has anybody done this empirical experiment?

If Risk Management is really an "edge", shouldn't I follow this practice and be rich by now because it is really easy to do.

To me, Risk Management seems to be a defense act. A good defense will ensure (or try to) you being in the game. Hitting the tennis ball back to the opponent's court no matter how they hit it to you. But to win, you really need some offensives. Something that leads you to a winning trade more often than not, not just being able to hit the ball back.
 
Quote from Bolimomo:

For if they are considered an "edge", it would imply that:

I don't need to study any chart pattern or pay attention to any news or watch what the market indices are doing. All I need is my 3:1 (or 4:1 or 5:1 or however you define yours) Reward:Risk ratio in any trade. So... I roll a dice or throw a dart on a Wall Street Journal on which symbol to trade. Then I roll a dice again to decide which side to be on (long or short). Initiate a trade. As soon as I enter my trade, I just set up a bracket order: (Assuming long) Up $3 I sell, down $1 I stop. When I am out, I repeat this cycle again. Throw the dart, roll the dice.

Has anybody done this empirical experiment?
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Not yet, but now that you planted the seed, I am compelled to try it. I'll keep you posted...
 
Quote from indexer:

There are two paths to successful trading: the linear way, where you apply computer power, statistics and probabilities to come up with an edge and exploit it with a lot of capital. Sophistication taken to the extreme, as with a hedge fund. Here, traditional, measurable brain power is the key.

The second way is the non-linear way: simplifying things, studying patterns, applying intuition and modifying your personality to handle risk and do the opposite of the crowd (when it pays). Here non-measurable intelligence is the key (intra-personal intelligence, spacial intelligence).

The linear group thinks the non-linear people are liars and frauds and want to see statistical proof of their success as they are data driven. The non-linear group thinks the first group is a bunch of light in the loafers dweebs who could not make a dime on their own without the backing of rich sugar daddies who fund their operations.

The success rate of both groups is probably the same. The 95% who are in between these two extremes are the ones who lose their money through friction (fees, commissions etc.) and to the people in the two groups.
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indexer,

This is one of the clearest and most insightful posting on ET about the true nature of traders type.

Having done it both ways - quantitative approach as well as TA approach, I believe both methods can work. One is not necessarily superior to another. They are different ways to look at the underlying market realities. And for people's whose brains are built differently they tend to gravitate toward one method over another. And they tend to look down on the other methods.

99
 
LIVER…Create and Invent your own Micro Edges. Edges you will not read about here, but come from within. That’s Step 1. Step 2 is Discipline.

Step 3 is we all get high and listen to Ben Harper, Burn One Down(Live).:)
 
Bolimomo


Registered: Sep 2008
Posts: 321


06-23-09 07:18 PM

The question is: What is an "edge".

To me: an edge is an advantage you have (and that the majority doesn't), and you can exploit it and fully utilize it to beat your opponent (the market), more often times than not. Definitely not 50-50. Not even 60-40. Maybe 70-30, 80-20, 90-10 over some time period.

In a tennis analogy again:

Telling people to hit to ball over the net to the other side, and make sure the tennis ball doesn't go out of bound. That's not an edge. That's the basics of the game.

Telling people to run to where the ball is going so to position yourself to hit back. That's better. but that's is still not an "edge". Because most successful players can do that.

An edge that will lead you to win, as I see it:
* You can power-serve lots of aces like Andy Roddick. That's an edge.
* You can run cross-court like a maniac like Rafael Nadal. That's an edge.
* You can fight back under extreme pressure at the face of losing like Serena Williams. That's an edge.
* You can split your legs like Kim Clijsters to catch a ball. That's an edge.

.........................................................................................................

WRONG, those are all subsets to the entire game. Andy Roddick can not win tournaments because he does not have a "WHOLE" game. Andy has managed to make a living off of the game but he is not even close to being a champian player. Will he win one someday, possible but unlikely.

Having a so called edge is having a "WHOLE" game. An internalized system on how to play different tennis surfaces, different players, different mental attitude etc , etc.

A trading, game plan are all flexible relative to the conditions at the moment, and least we not forget once the mkt (tournament starts) the situation becomes dynamic. Winners adjust the tactics to the situation.

Ok, lets slice some bacon.
 
Quote from trader99:

indexer,

This is one of the clearest and most insightful posting on ET about the true nature of traders type.

Having done it both ways - quantitative approach as well as TA approach, I believe both methods can work. One is not necessarily superior to another. They are different ways to look at the underlying market realities. And for people's whose brains are built differently they tend to gravitate toward one method over another. And they tend to look down on the other methods.

99
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except most of the evidence does not support things like TA indicators and a lot of other things like Gann, Fib, Elliot Wave, etc. Most traders gravitate toward TA and most lose. Newbies get captivated by things like RSI and MACD, and hear the drumbeats from authors and others who also use it to little profit or are still paper traders.. It is important to a trader to actually test what he uses and ensure it has a valid statistical outperformance edge, rather than develop belief and fall in love with things that do not add value.

I get into discussions with some, who claim something works. I ask "how do you know?" and it usually turns out they actually combine it with a number of other things, and have no idea of whether it works or not. They just believe in it. If something truly works, it should outperform at least a LITTLE on its own.

There is a reason so few actually make a lucrative, longterm living at trading. The have poor money and trade management skills, they are undercapitalized, wander from method to method, depend on techniques straighht out of Trading for Dummies, and do not know how to read price action or other things that actually are the domain of those who have put in the time and effort to learn how to trade profitably.

I usually get silence when I ask someone - "did you actually put a few hundred occurrences of your "method" into a spreadsheet, along with the following price action over a significant amount of time for the instruments you trade, to see if it WORKED??

Easy ways may sell books, but successful traders they do not make. On the other hands, I have seen a couple of advisories that actually worked, and potential traders complained that it was " too expensive." *sigh*
 
If I have Bloomberberg, Dow Jones and Trade the News and you have yahoo for news, THATS AN EDGE. If I have software that keeps bids and offers above and below the market for 1000 stocks with one single mouse click and you enter your orders one at a time manually,THATS AN EDGE. If I pay 3 tenths of a penny a share and you pay a penny a share, THATS AN EDGE. If I have greater leverage, THATS AN EDGE (spare us the comments, we all know its a double edged sword). If I can buy Royal Dutch from you via the NYSE and sell it to your cousin on the LSE for a quick no risk profit, THATS AN EDGE. If I have access to Goldman Sachs analyst research and you dont, THATS AN EDGE. They go on and on and on and on......The more you gather the easier money comes.
 
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