Edge

[kut2k2]

Quote from wrbtrader:

Maybe the issue is the word "edge" consider its origins and use is used in many different situations like sports, wars, exploration, social media and others.

Therefore, maybe there should be an independent thread that talks about "edge" because it really a philosophical discussion and a separate thread about "positive expectancy" that deals exclusively with trade signals and not anything else...

Makes sense to me.

This isn't philosophy. The word 'edge' originated in this context is just a slang synonym for advantage. In sports, you have an edge if you have an advantage however slight over your competition. In other words, you have an edge if you possess something that your competition doesn't possess. This often boils down to a better playing strategy that maximizes your strengths while possibly also taking advantage of your opponent's weaknesses.

In trading, the only way to know you have an edge in the market is a tested trading plan that routinely wins more money than it loses. That's it. It certainly helps to become and maintain your health but that is not what's going to win more money than it loses. Only your positive-expectation trading strategy can do that. Reducing your commissions help but that is not an edge. Your competition has the opportunity to reduce their commissions as well. Only net-profitability is an edge in the trading world.

Those who know how to net-gain will always have the edge over those who can only net-lose. Having a trading edge is like becoming your own casino,, and the gamblers are those taking the other side of your trades. Sometimes they win from you but more likely you'll win from them, especially if you also use good money management.

 

[wrbtrader]

Quote from kut2k2:

This isn't philosophy. The word 'edge' originated in this context is just a slang synonym for advantage. In sports, you have an edge if you have an advantage however slight over your competition. In other words, you have an edge if you possess something that your competition doesn't possess. This often boils down to a better playing strategy that maximizes your strengths while possibly also taking advantage of your opponent's weaknesses.

In trading, the only way to know you have an edge in the market is a tested trading plan that routinely wins more money than it loses. That's it. It certainly helps to become and maintain your health but that is not what's going to win more money than it loses. Only your positive-expectation trading strategy can do that. Reducing your commissions help but that is not an edge. Your competition has the opportunity to reduce their commissions as well. Only net-profitability is an edge in the trading world.

Those who know how to net-gain will always have the edge over those who can only net-lose. Having a trading edge is like becoming your own casino,, and the gamblers are those taking the other side of your trades. Sometimes they win from you but more likely you'll win from them, especially if you also use good money management.

1) Yes or No

You consider a "trade signal" as the only thing needed in a trading plan ?

2) Yes or No

Can a trader with a trade signal that has a "positive expectancy" be a profitable trader if he/she has poor money management, poor margin use, expensive commissions when cheaper is available, not discipline, inadequate computer equipment, inadequate at home or office trading environment, not able to manage emotions during the trading day and so on ?

Another way to ask the question...

Can we be profitable with a good trade signal being used within a poor trading plan ?

**********

As for the word "edge" its too commonly used in other situations (e.g. war, sports and many other situations) regardless if its a slang, its history, its origins...its how the thread starter used it to talk about other things that has a "positive impact" in his trading even though you and others may believe the only thing that matters is trade signals...nothing else.

The problem with these threads is that some traders show up and change the "language" sort'uv speak into a different discussion involving "positive expectancy".

Seriously, there was a past thread where someone started a thread about how Yoga helps him to relax before he begins his trading day resulting in him being better focus to execute his trading plan...within a few pages afterwards the discussion gets change into "positive expectancy" and how its the only thing that matters.

Therefore, as long as the word "edge" is a slang word to represent the key variables in his trading plan as the OP did for this thread...its just squishy talk as dbphoenix said it so well.

Thus, why try the use the word as a cover (slang) for the phrase positive expectancy (trade signal) talks when that's not the origins of the word nor how its typically (historically) used nor the intentions of the thread starter.

 

[Yukoner]

Quote from wrbtrader:

Maybe we're talking about the same thing.

I have about 10 important variables in my trading plan and a trade signal is just one of them. Simply, trade signals are just one chapter in a book regardless to its location in the book.

A good trade signal can not compensate for a poor trading plan.




I strongly disagree that an "edge" only should involve trade signals.

You give me a trader with trade signals that show positive expectancy in their backtesting and then ignores discipline, money management, proper capitalization, proper position size management, proper stress management, adequate computer, adequate ISP connection, poor commission rates and so on...

You're going to see a losing trader because all the other pieces in their trading plan weren't adequate or ignored in real trading.

A good trade signal can not compensate for a poor trading plan.

I have support about the above from the countless of trade journals here at Elitetrader.com and across many other trading forums where traders posted positive back tested results with programmers chiming in to say this is "good work".

Then the trader starts live (real money) trading their so called positive expectancy method and it mysteriously doesn't make money. You know the drill and have seen these journals. Oh well, back to the drawing board. Gotta re-design those trade signals because its the only thing that matters while ignoring every thing else.

Maybe the issue is the word "edge" consider its origins and use is used in many different situations like sports, wars, exploration, social media and others.

Therefore, maybe there should be an independent thread that talks about "edge" because it really a philosophical discussion and a separate thread about "positive expectancy" that deals exclusively with trade signals and not anything else...

Makes sense to me.

+10 pretty much what I believe too.

The example in another post of the son inheriting the fathers trading plan, does mean the son got a great plan for free... But it doesn't mean the son will be able to trade it! Which is why I believe "edge" involves other aspects than simply positive expectancy.

 

[dbphoenix]

Quote from wrbtrader:

Maybe we're talking about the same thing.

I have about 10 important variables in my trading plan and a trade signal is just one of them. Simply, trade signals are just one chapter in a book regardless to its location in the book.

A good trade signal can not compensate for a poor trading plan.

I strongly disagree that an "edge" only should involve trade signals.

You give me a trader with trade signals that show positive expectancy in their backtesting and then ignores discipline, money management, proper capitalization, proper position size management, proper stress management, adequate computer, adequate ISP connection, poor commission rates and so on...

You're going to see a losing trader because all the other pieces in their trading plan weren't adequate or ignored in real trading.

A good trade signal can not compensate for a poor trading plan.

I have support about the above from the countless of trade journals here at Elitetrader.com and across many other trading forums where traders posted positive back tested results with programmers chiming in to say this is "good work".

Then the trader starts live (real money) trading their so called positive expectancy method and it mysteriously doesn't make money. You know the drill and have seen these journals. Oh well, back to the drawing board. Gotta re-design those trade signals because its the only thing that matters while ignoring every thing else.

You're equating "edge" with "trading plan" while the edge is only part of the trading plan. But a trading plan that doesn't have one isn't going anywhere.

You're also equating "thoroughly tested" with "thoroughly backtested" while backtesting is only part of it, and not even the beginning. And as far as using ET's trade journals as support, given that the cheerleaders for these efforts aren't as a rule doing any better than the individual keeping the journal, if that, using them to bolster your argument is tenuous.

Again, your edge begins with the knowledge you gain through your research and testing that a particular market behavior offers a level of predictability and a profit to loss ratio that provides a consistently profitable outcome over time. And note the word "begins".

There is nothing philosophical about this.

 

[Yukoner]

Say A trader discovers the perfect trading system, but it can't be automated. However, all criteria is in place for the trader to have an edge with positive expectancy.

Now this trader becomes seriously greedy, just wants to make a bunch of money and retire. So he stays up most of the night, without much sleep, and keeps trying to trade the system. According to this guy http://www.psychologytoday.com/blog...-deprived-make-us-more-optimistic-about-money he will start to make decisions that will take on more risk... Just because he didn't get enough sleep.

What if that trader suddenly has a string of unexpected losses and starts to doubt his system (lack of confidence), and decides he should change his "optimal position sizing".

What if he then misses out on a large profit trade, and in frustration decides he needs to stop trading for a few days and go and backtest the perfect system to make sure it is still working in today's market. However, while being flat the market he misses three of the biggest trades of the month. In other words, his perfect system is now changed because he didn't execute those trades... It might even end the month unprofitable.

I know that there are things about ourselves, as traders and human beings, that we can control... That we can be aware of... And that will give us an edge in trading the market. To say that isn't a real edge, is to think of yourself as the perfect trader.

Good Trades,
Yukoner

 

[dbphoenix]

Quote from wrbtrader:

Thus, why try the use the word as a cover (slang) for the phrase positive expectancy (trade signal) talks when that's not the origins of the word nor how its typically (historically) used nor the intentions of the thread starter.

Any given word can mean something in one context and something else in another. Define, for example, "cover".

As to the intentions of the OP, what was stated was this:

• We all have the possibility of an edge, because the one thing we can control is ourselves.
  
  Here are some fast examples that will give you an edge over other traders.

After which I pointed out that the only element of his list that constituted an edge was the fourth one. Everything else may contribute to his eventual success or failure, but without the fourth, whatever one had for breakfast or how much sleep he had or how he feels about the general state of the world isn't going to be nearly enough.

 

[wrbtrader]

Quote from dbphoenix:

You're equating "edge" with "trading plan" while the edge is only part of the trading plan. But a trading plan that doesn't have one isn't going anywhere.

You're also equating "thoroughly tested" with "thoroughly backtested" while backtesting is only part of it, and not even the beginning. And as far as using ET's trade journals as support, given that the supporters of these efforts aren't as a rule doing any better than the individual keeping the journal, if that, using them to bolster your argument is tenuous.

Again, your edge begins with the knowledge you gain through your research and testing that a particular market behavior offers a level of predictability and a profit to loss ratio that provides a consistently profitable outcome over time. And note the word "begins".

There is nothing philosophical about this.

This is what I'm equating.

1) Trade signals are part of a trading plan. Its' just a piece of the puzzle even if its the biggest piece of the puzzle on any given trading day while other things from the trading plan are more important on other trading days.

For example, I've had trading days like 3 winners and 3 losers. Yet, my position size on the losers were small while my position size on 2 of the winners were large. Resulting in a very profitable trading day even though my trade signals were only 50% winners. Thus, on those particular trading days my position size was my edge.

Yet, you want me to believe position size management is not an edge.

2) "Anything" that helps a trader to be profitable that the trader has real trading results (not theories or backtesting) to show that he/she is not profitable when that "anything" is not used...

That "anything" is an edge or part of his/her edge.

3) Edge is a slang that's wrongly or confusingly being applied to the phrase "positive expectancy".

4) I did not say nor implied we don't need a trade signal. It's important to a profitable trader and so is a lot of other things in one's trading plan. Therefore, I do not equate the word Edge = Trade Signal all by itself and nothing else matters as you have implied that the trade signal is the only thing that matters.

If you did not imply that the trade signal is the only thing that matters...then you and I are in agreement or close to an agreement.

P.S. I'm in the OP's (thread starter) camp. There's a lot of things to help a trader besides just trade signals. You guys trying to turn this into a thread about "positive expectancy" only...you folks should start a different thread on that topic.

 

[dbphoenix]

Quote from Yukoner:

Say A trader discovers the perfect trading system, but it can't be automated. However, all criteria is in place for the trader to have an edge with positive expectancy.

Now this trader becomes seriously greedy, just wants to make a bunch of money and retire. So he stays up most of the night, without much sleep, and keeps trying to trade the system. According to this guy http://www.psychologytoday.com/blog...-deprived-make-us-more-optimistic-about-money he will start to make decisions that will take on more risk... Just because he didn't get enough sleep.

What if that trader suddenly has a string of unexpected losses and starts to doubt his system (lack of confidence), and decides he should change his "optimal position sizing".

What if he then misses out on a large profit trade, and in frustration decides he needs to stop trading for a few days and go and backtest the perfect system to make sure it is still working in today's market. However, while being flat the market he misses three of the biggest trades of the month. In other words, his perfect system is now changed because he didn't execute those trades... It might even end the month unprofitable.

I know that there are things about ourselves, as traders and human beings, that we can control... That we can be aware of... And that will give us an edge in trading the market. To say that isn't a real edge, is to think of yourself as the perfect trader.

Good Trades,
Yukoner

And what does any of this have to do with an edge? A winning edge can't compensate for the psychological deficiencies of the trader. But that doesn't mean that the edge isn't there. The edge isn't his mother. Or his therapist.

 

[dbphoenix]

Quote from wrbtrader:

This is what I'm equating.

1) Trade signals are part of a trading plan. Its' just a piece of the puzzle even if its the biggest piece of the puzzle on any given trading day while other things from the trading plan are more important on other trading days.

For example, I've had trading days like 3 winners and 3 losers. Yet, my position size on the losers were small while my position size on 2 of the winners were large. Resulting in a very profitable trading day even though my trade signals were only 50% winners. Thus, on those particular trading days my position size was my edge.

2) "Anything" that helps a trader to be profitable that the trader has real trading results (not theories or backtesting) to show that he/she is not profitable when that "anything" is not used...

That "anything" is an edge or part of his/her edge.

3) Edge is a slang that's wrongly or confusingly being applied to the phrase "positive expectancy".

4) I did not say nor implied we don't need a trade signal. It's important to a profitable trader and so is a lot of other things in one's trading plan.

Therefore, I do not equate the word Edge = Trade Signal all by itself and nothing else matters as you have implied that the trade signal is the only thing that matters.

If you did not imply that the trade signal is the only thing that matters...then you and I are in agreement.

To begin with, I've never used the term "positive expectancy". In fact, I'm rather sick of hearing it.

Second, as I've said, "testing" involves much more than backtesting.

Third, you continue to ignore what I've posted repeatedly about the edge BEGINS with . . .. Why I don't know.

In any case, unless the edge has a sound statistical basis, with or without a philosophical one, it isn't going to be consistently profitable. To suggest otherwise is to mislead the trader. Why else would people be at this for years and still be unable to make a decent profit, if any? It's just not that difficult. The edge has far more to do with being able to tell the difference between up and down than it does with position sizing.

 

[Yukoner]

Guys, this is turning into a very good discussion... Many of your points are great considerations. Thanks to everyone for more or less keeping it on topic.

Traders sharpen traders.