Define “Edge”
- Thread starter KGTrader4
- Start date
"Edge" is a statistic that gives you a higher chance to make a profit than random.
For retail their edge is just knowing when to trade and when not to trade. For example, BTFDing into the post-rate-hike-pre-certainty-dump would be dumb unless you have a multi year time horizon, at which point you are an investor and your edge is just knowing that the fed's primary mandate is to keep stocks going up without pissing off the poors.
For retail their edge is just knowing when to trade and when not to trade. For example, BTFDing into the post-rate-hike-pre-certainty-dump would be dumb unless you have a multi year time horizon, at which point you are an investor and your edge is just knowing that the fed's primary mandate is to keep stocks going up without pissing off the poors.
Either you have a positive expectation (edge) or a negative expectation (no edge). Use the formula to determine if you have an edge or not. You can apply it to any trading system you are using. Gamblers in a casino have negative expectation. Knowledgeable traders who know how to trade the Stockmarket, have an edge.
https://www.forex.in.rs/expectancy-formula-in-trading/
https://www.forex.in.rs/expectancy-formula-in-trading/
edge means advantage. strictly speaking it should mean some structural advantage you have in a market - low latency, information edges, structural edges (risk premia or inherent weaknesses in some product/market), or even being the first to discover some source of transient alpha before others crowd it.
in a much broader sense it can mean any system with positive expectancy (can be high win rate low return, or low win rate but high return)
its become almost a platitude in retail texts, but "psychology" and "money management" are not edges
in a much broader sense it can mean any system with positive expectancy (can be high win rate low return, or low win rate but high return)
its become almost a platitude in retail texts, but "psychology" and "money management" are not edges
Edge can be analytical (think: quant funds), informational (think: l/s equity funds), or behavioral (think: short sellers).
Edge itself is something in the process that gives you a more complete picture than others. For example, if you run a private survey of sales managers at various firms, you can develop an informational edge by getting color from legit sources on general conditions within the economy or industry. If the market price reflects the average of all views, edge is your advantage over the average.
Note: there’s a difference between edge and risk. For example, every talking head is discussing the Russia-Ukraine situation. You might think there won’t be a war, and load up on SPX futures. That is not an edge, that is risk.
Edge would be you having information such as talking to someone in Putin’s inner circle who tells you Putin doesn’t want to invade but needs a win diplomatically). Edge needs to come directly from a source and can’t be third-party or it’s just risk. “My professor friend who studies Russia says war not likely to happen” is risk not edge.
Edge itself is something in the process that gives you a more complete picture than others. For example, if you run a private survey of sales managers at various firms, you can develop an informational edge by getting color from legit sources on general conditions within the economy or industry. If the market price reflects the average of all views, edge is your advantage over the average.
Note: there’s a difference between edge and risk. For example, every talking head is discussing the Russia-Ukraine situation. You might think there won’t be a war, and load up on SPX futures. That is not an edge, that is risk.
Edge would be you having information such as talking to someone in Putin’s inner circle who tells you Putin doesn’t want to invade but needs a win diplomatically). Edge needs to come directly from a source and can’t be third-party or it’s just risk. “My professor friend who studies Russia says war not likely to happen” is risk not edge.
Following modified mean reversion method,
fearless & disciplined tactical decision making
capacity to act decisively when price hits
my target.
Following strict daily trade limit (Never over 6 trades per day)
Following a strict daily loss limit. (Never trade over the limit)
Following a strict daily profit target (Never trade over the target)
Record and study every trade
and determine what's right/wrong and how
to improve it.
Edge accepted If still in the green after 120 trades.
If not, I prepare a bowl of oatmeal and try again until
I'm dead or broke.
There is no secret what an edge is:
1) it can be a way of trading that the odds of one outcome is higher then the rest. (Most trader are focused on this)
2) it can be a positionsizing method where you win a lot more then you lose. (Most successful traders do this)
3) it can be a combination of 1 and 2. That is the closest you can get to a holy grail system. I do not know a lot of traders that do this.
1) it can be a way of trading that the odds of one outcome is higher then the rest. (Most trader are focused on this)
2) it can be a positionsizing method where you win a lot more then you lose. (Most successful traders do this)
3) it can be a combination of 1 and 2. That is the closest you can get to a holy grail system. I do not know a lot of traders that do this.