How do you know if it's luck or real edge?

[yeayo]

if you think you have an edge then basically you see yourself as a casino in the market you trade and all other market participants in that market as gamblers

 

[wyang]

Quote from EricP:

Personally, I check for statistical confidence of a system on a stock-by-stock basis. In other words, you may have a good system that works well over time for IBM, but is not well suited for trading XMSR, for example. If you are interested in checking the statistical confidence of a system over a broad portfolio of stocks, then you might want to combine all trades closed on the same day, and check for the statistical confidence of your combined daily results.

-Eric

EricP,

What's the highest level of confidence you have ever seen in any system? Has a high confidence system (e.g. 99%) turned bad on you?

 

[wyang]

Quote from yeayo:

if you think you have an edge then basically you see yourself as a casino in the market you trade and all other market participants in that market as gamblers

There isn't a single perfect dice in the world. If the cost of exploiting imperfection is lower than the cost of maintaning perfection, then you have an edge.

 

[NihabaAshi]

Quote from wyang:

There isn't a single perfect dice in the world. If the cost of exploiting imperfection is lower than the cost of maintaning perfection, then you have an edge.

Are you answering your own question ???

NihabaAshi

 

[gnome]

Quote from MTE:

Either way, when it stops working you either ran out of luck or the edge is gone.

Correctamundo! The market's a moving target, so "what's workin' now" frequently changes.

So long as your play has 3:1 RR expectancy (or more) and 50%-ish hit rate, you are likley to succeed.

 

[wyang]

Quote from gnome:

So long as your play has 3:1 RR expectancy (or more) and 50%-ish hit rate, you are likley to succeed.

That doesn't help, how many trades should I base my expectancy calculation on?, 20, 50, 200? By the time you find out something's changed you've lost a lot of money!

 

[EricP]

Quote from wyang:

EricP,

What's the highest level of confidence you have ever seen in any system? Has a high confidence system (e.g. 99%) turned bad on you?

I've seen many systems with confidence levels over 99%. Any system can deteriorate over time, as the market changes and evolves. Personally, I recalculate my confidence levels daily, based upon the new trades (if any) executed each day. If the confidence level ever drops to below ~90%, then I discontinue trading in the system. I will continue to monitor and paper trade the system, and will reactivate the system only after the market is trading in a way that is more in synch with that strategy again.

-Eric

 

[Kicking]

Quote from NihabaAshi:

If your consistently profitable...

Let someone else trade your method and if they can be consistently profitable regardless if they can duplicate your results or not...

My bet is that you have an edge especially if the method is well defined (no subjectivity).

There was a journal here at ET and the guy was doing well and shared his method but the performance by others wasn't profitable...

That told me that he was the deciding factor and that his method didn't have an edge although at first glance it looked great.

Later he started performing bad and ended his journal.

NihabaAshi

that would mean succesful discretionary trading is just luck. The method can be difficult to define as a discretionary trader can incorporate many different factors each factor's importance constantly being adjusted instictively if you will . A computerized system can never do that and only look at the market a certain way, that is generally from a purely technical/ mathematical perspective.

 

[coolweb]

Hey guys,
Heres some info for you of the things I've learned,


An Edge unlike most particpants would believe is a combination of edges,

If you only have one edge, it most likely won't work
but you need to combine this edge with

patience
money management
etc..

and the most simplest of edges can be very effective.

Sort of like a master of fighting weilding a poland spring water bottle can probably kill an unskilled person with a sword.

 

[gnome]

Quote from wyang:

That doesn't help, how many trades should I base my expectancy calculation on?, 20, 50, 200? By the time you find out something's changed you've lost a lot of money!

It's not "how many trades", but rather "what your trades are about". If you don't understand how you could reasonably make 10 ES points should this play work out the way you envision, then you shouldn't risk 3-4 points to play it.