Edge

[wrbtrader]

Quote from dbphoenix:

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

My bad. I just assume that those that continue saying they're in agreement with you in this thread and in other threads...wrongly I thought you were sharing the same use of their use of the phrase "positive expectancy".

Quote from dbphoenix:

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

In complete agreement on that.

Quote from dbphoenix:

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

Not ignored...I'm just not in agreement on that unless I misunderstood. For example, I've seen for fact some traders with excellent discipline, properly capitalized, excellent money management and not make a dime because of a poor trade strategy. Later (not first), they developed a good trade strategy to finalize their good trading plan. Thus, the good trade strategy was developed last in the trading plan while other things had been developed before the trade strategy.

Just the same, I've seen some traders with a good trade strategy and not have anything else (variables I've been mentioning) helping them and not make a dime. Later, they developed and start applying those other critical "somethings" in a trading plan and became profitable traders in live (real money) trading.

All the components working well together in the trading plan.

Quote from dbphoenix:

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.

Maybe we're talking about the same thing.

If a trader looks at his/her trading results and sees a statistical change in their performance (as in profits versus losses) when they apply "something" versus when they don't use that "something"...

That "something" is an edge for that trader even though that same "something" is not an edge for a different trader while being part of an edge for another trader.

The above involves an old debate elsewhere here at ET where a group of traders say that if its a "real edge"...it will work for everyone and anyone that uses it.

Anyways, I'll leave it at that considering we're not in agreement about what "something" can be and see all again in the next thread by someone that uses different things to help their trading besides just trade signals.

 

[dbphoenix]

Quote from wrbtrader:

If a trader looks at his/her trading results and sees a statistical change in their performance (as in profits versus losses) when they apply "something" versus when they don't use that "something"...

That "something" is an edge for that trader even though that same "something" is not an edge for a different trader while being part of an edge for another trader.

The above involves an old debate elsewhere here at ET where a group of traders say that if its a "real edge"...it will work for everyone and anyone that uses it.

I've never said that a given trader's edge will be the same as any edge determined by any other trader. If that were the case, everyone would have to trade the same way in order to be successful. This clearly is not the case since in such an environment there would be no trading at all. However, I will maintain that the edge must be statistical, not philosophical. Otherwise one might convince himself that he can't trade successfully unless he slept in his lucky pajamas.

As to the "positive expectancy" business, I wonder how many habitues of forums like this one know that "positive expectancy" was dreamt up by someone who couldn't trade his way out of a paper bag and probably came up with it to rationalize his failure? As a sidelight, he also publicized the notion that exits are all-important, that entries are irrelevant, probably because he hadn't the least idea how to enter a trade, which would also explain his drive to find some reasonable explanation for his lousy win rate. All of this is naturally appealing to those who don't know how to enter and who can't come up with a decent win rate, appealing enough anyway for them to keep plugging away year after year after year without ever bothering to come up with a decent trading plan, much less find an edge.

John Magee pointed out 70 years ago the psychological damage that can be done by a poor win rate, regardless of what the theoretical profit:loss might be, and his cautions continue to be true*. I've seen people bang away at this for up to fifteen years, barely able to cover expenses, simply because their strategies have "positive expectancy". I try not to think about it because it pisses me off. But it sure creates a lot of work for those who try to undo damage like this.

*This was in large part a response to the notion advanced a couple of decades earlier that one could profit from only one trade out of three and still be successful if he cut his losers short and let his profits run. To walk away from this with the idea that one can be cavalier about his entries, however, would be a grave error.

 

[actionzip54]

Quote from dbphoenix:

I've never said that a given trader's edge will be the same as any edge determined by any other trader. If that were the case, everyone would have to trade the same way in order to be successful. This clearly is not the case since in such an environment there would be no trading at all. However, I will maintain that the edge must be statistical, not philosophical. Otherwise one might convince himself that he can't trade successfully unless he slept in his lucky pajamas.

As to the "positive expectancy" business, I wonder how many habitues of forums like this one know that "positive expectancy" was dreamt up by someone who couldn't trade his way out of a paper bag and probably came up with it to rationalize his failure? As a sidelight, he also publicized the notion that exits are all-important, that entries are irrelevant, probably because he hadn't the least idea how to enter a trade, which would also explain his drive to find some reasonable explanation for his lousy win rate. All of this is naturally appealing to those who don't know how to enter and who can't come up with a decent win rate, appealing enough anyway for them to keep plugging away year after year after year without ever bothering to come up with a decent trading plan, much less find an edge.

John Magee pointed out 70 years ago the psychological damage that can be done by a poor win rate, regardless of what the theoretical profit:loss might be, and his cautions continue to be true*. I've seen people plug away at this for up to fifteen years, barely able to cover expenses, simply because their strategies have "positive expectancy". I try not to think about it because it pisses me off. But it sure creates a lot of work for those who try to undo damage like this.

*This was in large part a response to the notion advanced a couple of decades earlier that one could profit from only one trade out of three and still be successful if he cut his losers short and let his profits run. To walk away from this with the idea that one can be cavalier about his entries, however, would be a grave error.

Ditto. It would be very hard to trade for a living with a winrate below 60%.

 

[Yukoner]

Quote from dbphoenix:



*This was in large part a response to the notion advanced a couple of decades earlier that one could profit from only one trade out of three and still be successful if he cut his losers short and let his profits run. To walk away from this with the idea that one can be cavalier about his entries, however, would be a grave error.

Dbphoenix, why don't we try it? I don't know you, your trading history or your reputation on ET... But based on your responses you sound like you know trading. I'll bet that you, myself, wrbtrader, and kut2k2 could all achieve at least break even on the combine using the following parameters.

1) a popular market, say CL or ES or YM for example.

2) we pick the time of day we want to enter a trade

3) we can only take one trade a day, but can exit in increments of our choice

4) that trade is entered long or short... Based on a coin toss by an independent.

Everything else is completely up to us as the traders to decide what we want to do. Think you could do it?

I'm proposing that there is far more involved in being a successful trader than we realize, and the majority of that is based on decisions we have full control over. Which is why I believe that "edge" has a lot to do with the trader themselves, and yea they are measurable.

 

[dbphoenix]

Quote from Yukoner:

Dbphoenix, why don't we try it? I don't know you, your trading history or your reputation on ET... But based on your responses you sound like you know trading. I'll bet that you, myself, wrbtrader, and kut2k2 could all achieve at least break even on the combine using the following parameters.

1) a popular market, say CL or ES or YM for example.

2) we pick the time of day we want to enter a trade

3) we can only take one trade a day, but can exit in increments of our choice

4) that trade is entered long or short... Based on a coin toss by an independent.

Everything else is completely up to us as the traders to decide what we want to do. Think you could do it?

I'm proposing that there is far more involved in being a successful trader than we realize, and the majority of that is based on decisions we have full control over. Which is why I believe that "edge" has a lot to do with the trader themselves, and yea they are measurable.

There's definitely more involved in being a successful trader than entering long or short based on a coin toss.

If you're interested in how I trade, I've been demonstrating it for months in my threads. You're welcome to read them. The "edge" has to do with the ability to draw a straight line.

 

[Yukoner]

Quote from dbphoenix:

There's definitely more involved in being a successful trader than entering long or short based on a coin toss.

If you're interested in how I trade, I've been demonstrating it for months in my threads. You're welcome to read them. The "edge" has to do with the ability to draw a straight line.

Haha, without a doubt... In no way was I implying we should actually trade real money based on a random coin toss.
I just think you would be surprised at the outcome of your trades if you were to try what I proposed.

And for the record, I do believe there are statistical edges, which is why I raised point #4 in the first post. I also believe that it is a small part of what makes a trader successful. However, I want as much "EDGE" as is possible on any trade I take.

 

[dbphoenix]

Quote from Yukoner:

Haha, without a doubt... In no way was I implying we should actually trade real money based on a random coin toss.
I just think you would be surprised at the outcome of your trades if you were to try what I proposed.

And for the record, I do believe there are statistical edges, which is why I raised point #4 in the first post. I also believe that it is a small part of what makes a trader successful. However, I want as much "EDGE" as is possible on any trade I take.

Or, better yet, why not do something that might actually be helpful to someone: tell us what your trading plan is and demonstrate a few trades?

 

[piezoe]

I'm not interested in anything that requires knowledge of price in the future. All my trading, good or bad, is based on the past. The entry is based on the past, and the exit is based on the past. Support and resistance are based on the past. I don't require any information about the future to trade. And when I enter a trade I don't know whether price will go up or go down. I base my entry on what price did before I entered. I base my exit on what price did before I exited. I find it pointless to choose targets. I just stay in the trade as long as I can with out giving the market anymore of my money than I have to. When I plot my account balance versus time and fit the points to a straight line, the slope tells me what my edge in the past was, but not what it will be in the future. The scatter of the points together with the slope tells me everything I need to know about the quality of my trading. I am a gambler; a happy gambler as long as the slope of my equity plot is positive and the scatter of points about the line tells me my risk was under control. (I use other information besides price, but it is always information from the past. I have yet to figure out how to get information from the future. If I figure it out, I will use that information to get rich, but I won't tell anyone what I know.)

 

[dbphoenix]

Quote from piezoe:

I just stay in the trade as long as I can with out giving the market anymore of my money than I have to.

And, I assume, as long as the market is willing to reward you.

 

[piezoe]

Quote from dbphoenix:

And, I assume, as long as the market is willing to reward you.

Indeed!