Conceptually define your trading edge

Calmness said:
Conceptually define your trading edge, skipping the numbers, and just defining the concept.
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Good question Calmness,

I believe this is a good business question you have ask. cause I frequently ask myself, what is my edge in this trading business.

I think a better question is "How do I obtain a trading edge"?

My edge (work in progress) is:

Technical:
1. If I look at a chart and i see price is going up, pick a spot on the chart to enter in the direction of price. Pick a stop loss location. Wait. Exit when price turns around Vice versa for if price is going down.

In my personal opinion, I really do not think I can do anything else when it comes to trading besides stare at the chart and candles on the chart and makes decisions. I believe the more experience i get staring at the chart daily and making decisions the more my edge grows.

I could be wrong, but I am learning that proper education and experience trading everyday is one way to gain an edge.

Risk management:
1. 2 trades per day

Personal:
1. Once i enter the trade, set my alarms, and go find something to do besides stare at chart.

PS: I am non-profitable trader still in practice and study mode.
 
Last edited:
Calmness said:
Conceptually define your trading edge, skipping the numbers, and just defining the concept.
More...

Whales need to move into / out of positions that are hundreds to thousands of times larger than my whole account size. Their activity influences the price over hours, days or weeks; I can get in and out with a click and therefore trade inside them.
 
Calmness said:
Conceptually define your trading edge, skipping the numbers, and just defining the concept.
More...

I don't believe I have an edge, per se. All I have is systematic exposure to a diversified set of risk factors which are very well known (carry, momentum, short vol and other bits and pieces). The hard part is sticking to the exposure. A good analogy here is that Warren Buffet has no edge in the sense that a regression of his returns against well known equity value factors leads to the conclusion that his alpha is insignificant (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197185). But sticking to that investing style over such a long period requires almost inhuman levels of discipline.

Any further advantage I have is from extremely rigorous risk and position management, and an obsession with avoiding overfitting and minimising trading costs.

GAT
 
Calmness said:
Conceptually define your trading edge, skipping the numbers, and just defining the concept.
More...


It's a good question and a good exercise. I'll go:

I have several strategies running, so in no particular order:

  • Volatility premium - the fact that implied vol has been systematically higher than realized vol, basically getting paid to be the insurance company
  • Time Series momentum - securities that have trended over the last 3-12 months tend to continue to do so
  • Cross-sectional momentum - The best performing securities in a basket tend to continue outperform
  • Quality - Highly Profitable / low debt / high margin (and usually less volatile) companies tend to have higher risk-adjusted returns
  • Boring old diversification - especially cross-asset diversification of fundamentally different things (think stocks vs bonds) and the intelligent use of leverage to maximize this benefit

In general, I think people would be much better off if they stopped trying to find some secret edge and rather understand known edges (like the ones above) and thinking about how they can implement those into a portfolio they believe in and can stick to.
 
Mine never fails.


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