"edge"

I agree with you, but did not state is a gracefully as you. The "Mav" has solid points and I agree with most, but my edge lies in my methodology, and the tool bag filled with many ways to make money in each market environment. Besides Pattern Trading, and Tape Reading, Open Order System, Directional play with spread options, Writing Premium system, and few addition. The edge I need is a combined toolbox to get the job done. I play when I want, how big I want and against whom I want. You can not do that at the casino.

The easy money was made when I traded against the retail fool 3 years back. I am now trading with more experienced traders and the last survivors of this bear market.

LOL, Mav about patterns and candles and TA.......one tool is not a complete arsenal, but the combined package would love to meet you on the other side of my trades. Survival of the fittest.

My edge has a good chance to "cut "into your account.
 
Puffy,

A trader's edge is not a mathematical or defined advantage but the discipline to apply a pattern of responses to the market which is consistently profitable.


What does this mean? I agree with you, but to me when I read this it means:

discipline = preplanned stop loss at point of entry
pattern = winrate

All this could be quatified with mathematics couldn't it?

Michael B.
 
Quote from ElectricSavant:

Puffy,

A trader's edge is not a mathematical or defined advantage but the discipline to apply a pattern of responses to the market which is consistently profitable.


What does this mean? I agree with you, but to me when I read this it means:

discipline = preplanned stop loss at point of entry
pattern = winrate

All this could be quatified with mathematics couldn't it?

Michael B.
More...
By a mathematical edge or systematic edge I mean like casino games where the house edge is defined by the rules of the game, or floor trading in open outcry where off-the-floor traders effectively have to pay the spread to place a trade, or like market makers where they get the first crack at the the order flow while placing trades for their own benefit. In each case, the edge was defined by the rules of the system themselves- hence the edge was a matter of arithmetic.<p>Few traders really have such a mathematical edge unless they are some BSD on the floor of an exchange and have primary access to a good chunk of the paper flow. (Even among the floor traders few are actually in this position.)<p>
The traders edge I was getting at is something that is not defined by logic, arithmetic or the system itself, but is related to a refined skill applied over and over.

Its like the edge a pro golfer has over a sub par three amateur. They play similar games, but the pro is going to gain half stroke each round. The edge is going to show up over time allowing the pro to win big.

When people ask "What is the traders edge?" they are not looking for lectures about casino odds, but are trying to understand the traders knowledge and skill which allow him to win over time (the softer definition of an edge rather than the strict mathematical defn).
 
Quote from okwon:



That's an interesting point, but why then are there many former market makers at the prop firm I'm at? Why do more seem to keep coming in? Don't they know they have no edge? Maybe they just wanted to try being suckers for a change.
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This is kind of a silly question isn't? Because you are implying that just because they are on the floor that they must be disciplined traders right? I am afraid this is not the case. Floor traders blow out just as easily as non floor traders. They get too aggressive, too greedy, too scared whatever. Bookies can lose money too. I know many a bookie that decided that all the one sided paper he was getting was wrong on a game and he decided to take the other side of the bet instead of just collecting the juice. Well he lost and so goes that story. The bottom line is having the edge is not enough. There are plenty of Enrons and Nick Leeson's out there that have all the means to grind it out and use their edge to make a lot of money but they choose not to. That's human behavior for you.

And another point, just because someone makes money everyday does not mean they have edge. I don't know why some of you are looking for this elusive edge and trying to even call it that. I can beat my buddies in poker everynight but its not because I have edge over them, I am just a better player then they are. Some guys make money trading everyday just because they are better traders period. No edge, just a better trader. In fact I would argue that its not edge that ultimately makes the difference between whether you make it or not but personal discipline. So stop trying to argue over who has edge and who doesn't or trying to find a system or method that has edge or doesn't. Just accept the fact that bookies, MM's, and casinos have edge and you do not. However you can still make money by simply outplaying your opponents. You don't need edge for that. And stop it with this soft edge hard edge crap. Improve your discipline and you will make all the money you want.
 
Quote from Maverick74:


And another point, just because someone makes money everyday does not mean they have edge.
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I disagree.

If someone makes money in a systematic manner vs. a random bet - then that person has some kind of edge.

I think a lot of floor traders or ex-floor traders promote the idea that there is no edge outside of the floor because they have not been able to make money off floor (its harder) - so it makes them feel better if they can say that there is no edge if you are not a floor trader/specialist/marketmaker.

Bottom line - it is simple logic: you cannot make money in the market on a consistent basis if you don't have some kind of edge!

Off-floor edges don't last as long as the floor edge which stays in effect until the regulators or competition changes it. The floor edge can last decades or even centuries. An off floor edge may only last until the market changes (3-6 months) or until other traders copy what you are doing. Then you have to find a new edge.



 
Richard Dennis made millions in the 70's with his turtle strategy.

It worked great and was an "edge" as long as commodities were trending strongly due to inflation. His edge lasted years.

When commodities stopped trending - his edge went away.

If that is not the definition of an edge, then I don't know what is.
 
An edge is very simply an advantage that a "usual" trader does not have. Whatever you do that is beyond the norm...that is your edge. And by definition, if you can't perform in any one area beyond the norm, well, you ain't got an edge.

That edge can take many forms. Here are a few:

1. The psychological ability to trade your signals in tough conditions. (Most people can't)
2. A system that gives you advantage that most don't have.
3. Capitalization that helps you put on trades that most can't.
4. A lifestyle that permits you to watch the markets full time, because most people can't.
5. A supportive family or spouse. Most people don't have it.
6. The confidence and financial support to remain in the game through your learning curve, and when things get tough, when most traders wash out.
7. A particular market or watchlist that jives with your style.

All of these, or any one of them, are an edge. So don't be intimidated when you read that you've got to have an edge in order to succeed. You may have one, and just don't recognize it.
 
A lot of nice words BUT how do you

quantify the edge based on the

trading results from one's trading.

Which number can you relate

with the edge ?

The scientists under you should be able to answer the question.....
 
Quote from lindq:

An edge is very simply an advantage that a "usual" trader does not have. Whatever you do that is beyond the norm...that is your edge. And by definition, if you can't perform in any one area beyond the norm, well, you ain't got an edge.

That edge can take many forms. Here are a few:

1. The psychological ability to trade your signals in tough conditions. (Most people can't)
2. A system that gives you advantage that most don't have.
3. Capitalization that helps you put on trades that most can't.
4. A lifestyle that permits you to watch the markets full time, because most people can't.
5. A supportive family or spouse. Most people don't have it.
6. The confidence and financial support to remain in the game through your learning curve, and when things get tough, when most traders wash out.
7. A particular market or watchlist that jives with your style.

All of these, or any one of them, are an edge. So don't be intimidated when you read that you've got to have an edge in order to succeed. You may have one, and just don't recognize it.
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I would call the above "advantages".

For an edge you need a system with an entry and exit that consistently shows a net profit.

Floor edge - buy bid, sell ask - capture spread.

Richard Dennis' edge - during commodity bull - buy new 20 day high, sell at trailing stop loss.

Stock analyst edge - tell your mother to buy stock of a company you cover at market, upgrade stock the next day, tell mom to sell when momentum subsides.
 
Quote from OddTrader:



I have about A% confidence to win B% trades in order to achieve a C% growth of capital employed, before D% of employed capital is disappeared by an E period of time. :( :confused: :D
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IMHO, Everyone's edge can be very much individual and unique, otherwise it would not be called an edge (s)he own.

I would say the target return on capital employed would depend on a personal trading style which can be further improved over time. His/her initial edge may have only a small % return, and gradually his/her impoved edge could have higher % return.

So many major factors affecting an edge have been mentioned in this thread. After reading some interviews from books, I guess one of the most significant edge to win big profits would be the knowledge of finding out any market inefficiency during a particular period of time, before the found inefficiency has been deminished (or recognised by others).
 
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