Easy edges in the markets for retail participants?

[kut2k2]

I'm curious as to what actually constitutes an "edge". I have a favorite technical indicator that seemingly works across many time frames, and it is derived from very fundamental math principles. (I came up with the idea in an "aha" moment, tried it out in crude form using stockcharts.com, and gained enough confidence to start researching it. Turns out another guy had the same idea and refined it far beyond anywhere I would have gotten in a reasonable amount of time. I want to make money, not optimize indicators.)

So, let's assume this thing works. Let's assume (for me) it lets me swing trade over periods of a few days to a few weeks with a decent win rate (> 70%) and higher reward than risk. Isn't that an "edge"?

Followup question: how on earth does one perform thousands of points of backtesting on something that might trigger a half dozen trades per year on a given instrument? I've checked dozens of instruments over a few key time frames each to the point where I trust this system, but Holy Moses I am nowhere near "thousands" of backtest points. Am I just fooling myself?

An edge is positive expectation.

As to your followup question, just test it the same way you would trade it: with multiple instruments. So you're multiplying a low trade count per year by the number of instruments you use. As to thousands of trades, you might downsize to hundreds of trades in your backtesting.

 

[MarketAddict]

http://www.chartpatterns.com/symmetricaltrianglechartsstocks.htm

This common setup found all over the net offered four profitable trading opportunities today during the crude oil pit session. I've been profiting from this setup regularly for several years now.

I think all patterns could be profitable.. but you have to know when to take them.. Wouldn't you agree?

 

[NoDoji]

I think all patterns could be profitable.. but you have to know when to take them.. Wouldn't you agree?

Yes, I agree. For me, a trade setup is a pattern + context. The context tells me a) if there's enough "airspace" to a next level likely to be tested and, b) whether my maximum acceptable loss on the trade is feasible from the entry price.

 

[dbphoenix]

Yes, I agree. For me, a trade setup is a pattern + context. The context tells me a) if there's enough "airspace" to a next level likely to be tested and, b) whether my maximum acceptable loss on the trade is feasible from the entry price.

Or one can just take the breakout and see how it goes.

 

[Bob111]

but i'm still waiting for an answer from ET members,why patterns aren't' working anymore or at least-not as good as it was before? (US stocks)any thoughts?

http://www.thecrosshairstrader.com/...he-failure-of-popular-stock-trading-patterns/

 

[dbphoenix]

but i'm still waiting for an answer from ET members,why patterns aren't' working anymore or at least-not as good as it was before? (US stocks)any thoughts?

http://www.thecrosshairstrader.com/...he-failure-of-popular-stock-trading-patterns/

Who says they're not? Whether or not a pattern "succeeds" or not depends on how it's defined. For example, there was recently a lot of buzz about the "H&S" in the ES which amounted to nothing. But this morning there was a legitimate H&S in the NQ which worked out perfectly.

 

[DR.BOUYE]

but i'm still waiting for an answer from ET members,why patterns aren't' working anymore or at least-not as good as it was before? (US stocks)any thoughts?

http://www.thecrosshairstrader.com/...he-failure-of-popular-stock-trading-patterns/

There are various types of pattern that exist as a visual on a chart. A dead cat bounce for example, is what I would refer to as a low grade category pattern, because of its poor parameter definition and characteristics.

Mathematical patterns offer the highest quality in terms of structure and application.

 

[goodgoing]

It depends what kind of patterns you are talking about. Old chart patterns (h&S, wedges, triangles, candlesticks, etc.) do not work anymore because everyone can spot them and there are many free tools available for identifying them. Stock screener by Finviz for example. More importantly some or even most of those never worked well because the success rate was not known and it was actually terrible.

There are also mathematical chart patterns where precise measurements of parameters are possible for any group of securities. Here is a tool that finds those and determines their statistical parameters. The analysis in that blog is representative of the amount of work one must do to increase chances of success. It is rather ludicrous to expect non-quantifiable visual inspections of charts to generate profitable setups unless one has many years of experience doing this type of thing and can rely on instinct.

 

[DR.BOUYE]

Rare, maybe. Unique, hardly. Uncanny ability, depends on how one views the market. If one views trading as analogous to herding cats, then extrapolating price correctly would appear to be an uncanny ability. But if one views it as more like driving horses, extrapolating price is much more ordered, given the occasional bolt. One can even extrapolate price correctly if one views trading as more like herding sheep, if one has control of the dog.

Look further into the field of digital signal processing (Nyquist-Shannon sampling theorem), the fourier series is central to the original proof.

 

[NoDoji]

Old chart patterns (h&S, wedges, triangles, candlesticks, etc.) do not work anymore because everyone can spot them and there are many free tools available for identifying them.

Nope, them triangles are way too obvious and everyone, I mean everyone, has at least one eye to see 'em with. (Those trend lines across longer-term swing highs and lows are pretty darn awful, too.)