Curious about traders "edge."

an edge is an advantage defined by your ability to generate RISK ADJUSTED returns that are better than what broad market indexes ,that are bound by IDENTICAL UTILITY CURVES, would generate. This is nowhere to be found in text books but my own definition.

What I mean by that? Well a t-bill will always give you better risk-adjusted returns (based on historical performance) but such returns plot on a completely different utility curve. If you do not know what I mean with utility curve then you should first learn the basics and not put any trades on because you will for sure lose in this competitive game. Just my 2 cents.

Quote from CheckM8t:

Many traders in many threads reference their edge. I'm having a hard time understanding what exactly an edge is since a lot of what I read says no strategy is better than 50/50 in the long run.

Can an edge simply be strict discipline, effective risk management or profit maximization when a trade is proven correct?
More...
 
for a scalper the edge would prob be speed
for a position trader the edge would be patience.
for you ?
well look within :)

in any case you would need to consider risk vs reward vs probability
and thats the main edge successful traders have: putting on good trades, regardless of the gain or loss. and as far as being 50% right.. thats phenomenal. i have days where im 30% and make good money.
 
Quote from asiaprop:

an edge is an advantage defined by your ability to generate RISK ADJUSTED returns that are better than what broad market indexes ,that are bound by IDENTICAL UTILITY CURVES, would generate. This is nowhere to be found in text books but my own definition.
More...

I think this is what is used to compare fund returns. This is good for comparison. But an edge is anything that you can use to make money. Do you think that a guy who makes 50% with 50% drawdown does not have an edge if the index made 50% with 20% drawdown?

What about if the guy made his profit with just one trade lasting 10 days when the index needed 365 days? Where is the risk greater?
 
"Edge" = fiction.

Things only work out.... until they don't anymore.

Your "edge" won't help you there.

People are fooling yourselves...
 
BwPirt


Registered: Dec 2010
Posts: 127


04-28-11 02:05 PM

How do you acquire this "edge"? Backtesting?



Backtesting is one way. Some others are charts, technical analysis, extensive research i.e. breaking down financial statements and the companies competitive edge looking forward, comparing value of the stock to the market eg. EPS etc., market outlook and more.
Which type of edge depends on your trading parameters i.e. day, swing or position trading.
 
Quote from BwPirt:

How do you acquire this "edge"? Backtesting?
More...

Backtesting tell you only what may not work. It can never tell you if you have an edge. In other words, it tells you if you have no edge. But this is also good information.
 
backtesting for price action in context is just hopeless to try, you're better of forwardtesting on sim and keeping good detailed notes in a doc on how you're setups might actually work and in a spreadsheet and creating a feedbackloop between the two to actually learn something. If you sometimes doubt you're setup you need to start from scratch and redefine it. That worked wonders for me.
 
Quote from cvds16:

backtesting for price action in context is just hopeless to try, you're better of forwardtesting on sim and keeping good detailed notes in a doc on how you're setups might actually work and in a spreadsheet and creating a feedbackloop between the two to actually learn something. If you sometimes doubt you're setup you need to start from scratch and redefine it. That worked wonders for me.
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How long can you do that with a few bad systems? It takes a logn time. Time is money.

Backtesting is very helpful if it is applied in the right way.

(1) Backtest
(2) Forward test
(3) Out of sample test
(4) Real-tradig with with small risk
 
yes, it takes time, becoming a doctor takes time too, I tried backtesting things for ages, only when I stopped doing that and tried it to other way I started to make progress. You need to see 'context' in live circumstances. But I know most people don't really want to spend the time and effort into this ... not really hard .... I know cause I was one of them ...
 
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