Finding an Edge

[bone]

An "edge" is the system or methodology that allows you to consistently take money out of a market. From what I've seen "edges" are rarely durable and are usually highly personalized or unique to an individual.

On the floor - an edge could be standing next to your brother-in-law who is filling the deck for Goldman Sachs. Usually on the floor an "edge" was buying the bid and selling the offer - you could make a nice living flipping and scratching 1/32'nds in the Bond Pit. It could be stealing signs being flashed in to the pit from the desk clerk. It could be watching the S&P or Yen CME quotes on the board and picking off CBOT Bond bids or offers accordingly if there was a sufficient intermarket correlation. It could be watching the OTR cash trade and trying to pick off futures bids or offers. In the Pit days there was quite a bit of telephone arbitrage in the seventies and eighties. For example, a couple of guys working together would transmit spot gold trades in the cash market and pick off Comex futures orders in the pit. Same I've heard for the cash Cotton markets versus the pit.

Electronically - I've seen literally dozens and dozens of ways. In the late nineties we used to pick off DTB Bund orders based upon a live CBOT Bond Pit squawk box. I've seen custom programs built to game the order queue and order matching algorithm. I've seen lots and lots of spread arbitrage setups over the years.

Point being - there is no singular definition or ultimate example.

 

[treeman]

Check out the daily gold chart. It’s got a W that’s trying to form. If it executes, you want to be in on it. There are no guarantees in this business, but it does look like gold is feeling out a bottom (and i’m very bearish on commodities right now.. gold is the only metal doing this, which I can’t explain- but TA is not about explications of fundamentals). The W is skewed appropriately for a rebound too (right leg higher than the left leg). It has to get above 1220 to complete. Again, no guarantees in the biz, but this is the sort of thing you look for. Some nice close stops too.m should allow you to size up.

Something to take note of- notice how long it takes to bottom. In this case 16 trading days. That’s over 3 weeks. Everything takes longer than you’d expect it to.

Full disclosure, i have both short and long stops out for gold. I have no clue which will hit. My short play is below 1170.

 

[bln]

Numbers man.. numbers..

I don’t need charts, I don’t need news, I don’t need quarterly reports.. I only need numbers..

- hard work, evenings, weekends
- blood, sweat and tears
- understand market mechanics
- search for stuff that show promise and evaluate it
- statistical probability analysis
- statistical validation
- validation leads to confidence
- put risk first, think in terms of risk
- development of self discipline
- emotional detachment towards money
- having a step-by-step process for evaluation

I don’t expect you to understand anything of what I wrote above.

I find new edges all the time. Most of the time I shelf them as I have better edges in play. Sometimes I switch between edges as some are better is high volatility regimes than low volatility ones.

Discovered a new edge this week.. it will be fun to try it out using some small amounts of money.

There is a infinite amount of Alpha out there, just go grab it..