How do you know when you have found an edge

K

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Hi,

Had a relative newbie question .... how do you know when you have found an edge?

From everything on these forums, it seems that to be a consistently successful trader, you have to have *at least* three things:
a) An edge
b) Sound money management (minimizing losses, position sizing etc).
c) Discipline to execute against your edge while following your money management approach


As beginners, we are often missing all three - if not two of these. So:
i) How do you know if you are missing an edge, or the discipline?
ii) How do you know if you edge is sustainable or just some fleeting luck? Is there anything such as a sustainable edge?
iii) As a beginner, starting to paper trade, when should one focus relative to the three?

Thanks.
 
You know you have an edge when you make money consistently. It's that simple. The more you test and verify it the better, both backtesting and forward testing.

I believe there is such a thing as a sustainable edge.

Discipline to execute the signals your system gives you is paramount. Once you have an edge, you have to take ALL the trades - try to cherry pick trades or mess with the system and it will all unravel. This is 10x - 100x harder than finding the edge in the first place. Only the tough make it in this business.

Welcome to the jungle!
 
Quote from andrewbee:

You know you have an edge when you make money consistently. It's that simple. The more you test and verify it the better, both backtesting and forward testing.

I believe there is such a thing as a sustainable edge.

Discipline to execute the signals your system gives you is paramount. Once you have an edge, you have to take ALL the trades - try to cherry pick trades or mess with the system and it will all unravel. This is 10x - 100x harder than finding the edge in the first place. Only the tough make it in this business.

Welcome to the jungle!
More...

+1
 
Andrewbee,

Thanks. Let me just confirm... you say that you know you have an edge when you can make money consistently.

What i dont understand is that many (if not most) of the posts here are from traders who are not consistently profitable. (just from reading the comments).

Additionally, it sounds like most of them are not consistent because they don't follow their own rules (lack discipline)- at least from reading what they write.

I'm not consistently profitable either. But often wonder it is because lack of edge or lack of discipline?

Should I just look at my records and do a post mortem on my failed trades? My sense is that I may be in a poor position to judge my own shortcomings.... any thoughts




Quote from andrewbee:

You know you have an edge when you make money consistently. It's that simple. The more you test and verify it the better, both backtesting and forward testing.

...
More...
 
you are listening to general talk on forums, or books.
what you have read is true, but it will not make you money.

An edge is something that is mathematically proven. We know that math works (and fails only because of wrong assumptions ), so you will not have hard time following a math-based edge.

Remember this: all what you have read on forums and in books are generalities. They are not wrong, but they will not make you money (as yourself have found out).

If you cannot develop an edge, pay someone to show it to you or develop one for you, or pay so you can follow that someone edge.

Again, do not forget the one thing about an edge: demand mathematical proof of why it works (not statistical proof).

I post real-time calls on RFT's blog. You can watch my edge.
But I do not promise that I will continue posting calls forever.
I am starting to see some people coming and staying for sometime. It is fine for the one trader, but I do not like to give for free something that institution (such as Morgan stanley, GS, Citi bank, and Zweig private hedge funds, Toronto dominion who have been visiting my blog) may be using.

I had two guys today from Zweig and TD Bank stationing there for a long time till I posted the call today, and then they went. If it is for individual use, it is fine. But these guys are from places that are paid to run money, and they come to me to pick trades for nothing...

I may add a warning that it is for individual use only.
 
Quote from riskfreetrading:



Again, do not forget the one thing about an edge: demand mathematical proof why it works (not statistical proof).
More...


How can you have mathematical (not statistical) proof, in trading? I would think that statistical "proof", while not perfect, would be the best that you can do. Can you give an example (even a simplified one) of a truly mathematical proof of an edge?
 
agree about forums being general. but can you help me understand difference between a mathematical vs. statistical proof in this context. How would one mathematically prove that an edge works?


Quote from riskfreetrading:

you are listening to general talk on forums, or books.
what you have read is true, but it will not make you money.

An edge is something that is mathematically proven. We know that math works (and fails only because of wrong assumptions ), so you will not have hard time following a math-based edge.

Remember this: all what you have read on forums and in books are generalities. They are not wrong, but they will not make you money (as yourself have found out).

If you cannot develop an edge, pay someone to show it to you or develop one for you, or pay so you can follow that someone edge.

Again, do not forget the one thing about an edge: demand mathematical proof of why it works (not statistical proof).

I post real-time calls on RFT's blog. You can watch my edge.
But I do not promise that I will continue posting calls forever.
I am starting to see some people coming and staying for sometime. It is fine for the one trader, but I do not like to give for free something that institution (such as Morgan stanley, GS, Citi bank, and Zweig private hedge funds, Toronto dominion who have been visiting my blog) may be using.

I had two guys today from Zweig and TD Bank stationing there for a long time till I posted the call today, and then they went. If it is for individual use, it is fine. But these guys are from places that are paid to run money, and they come to me to pick trades for nothing...

I may add a warning that it is for individual use only.
More...
 
Quote from theboxer:

How can you have mathematical (not statistical) proof, in trading? I would think that statistical "proof", while not perfect, would be the best that you can do. Can you give an example (even a simplified one) of a truly mathematical proof of an edge?
More...

Any mathematical edge will pass the statistical test, the opposite is not true.

It is hard to give an example of a mathematical proof without giving one of my edges. But if you pay for something, you should demand it.

I will not be surprised that those who have an edge such as the one I described are now smiling while reading this. Because they know that what I am writing is true and is one of their secrets.
 
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