If there is a quantitative measure for Edge, what is it?

[OddTrader]

Quote from Opra:


In other words, having "edges" does not garrantee trading success and lacking some "edges" does not spelll trading doom either. It all comes down to recognize one's strengths and weakness and trade accordingly.

I fully agree. However, I also believe having edges does provide additional competitive advantages - meaning a potential for better ratio of "return vs loss".

 

[nononsense]

Quote from OddTrader:

I fully agree. However, I also believe having edges does provide addtional competative advantages - meaning a potential for better ratio of "return vs loss".

To a profitable trader, an edge is very personal, like a girl he loves.
In trying to express what an edge means to him, this simply would take up too much of his time in order to bother with it.

Edges in the sense used in this thread are mainly loser's dream phantasies about magic wands to become rich.

 

[RunTrade]

Quote from OddTrader:

Thanks for your revelation above.

The only reason that I can think of to quantify your edge, would be to exploit it when it is unusally strong. However, that may require near continuous calculations...or at least often enough to not be feasible. You would need a "base" number which is probably a mathimatical nightmare in itself.

 

[OddTrader]

Quote from RunTrade:

Everyone seems to be agreeing with ecritt's idea of quantifying edge. I havent gotten a chance to get the whole way through this thread, so i apologize if this has be mentioned already.

While ecritt's idea is logical and probably mathematically correct, I believe it should not be pursued. In fact, quantifying an edge should not be attempted either. (Which is why it has little research on it)....

Many traders seem to forget that the market is constantly changing, evolving, yada yada...this is why we all know that systems will eventually fail without modifications. The same applies to an edge. Its strength/weakness will constantly flucuate along with the market (unless you have the perfect system that adjusts to the market 100%). So quantifying your edge could only lead to a false sense of security making one believe his edge is stronger and more secure simply b/c it is defined. The quality of an edge will change as the markets change, therefore the only signifigant point is that you keep an edge at all times.

~RT

My belief and experience have been measuring edge should be aimed for facilitating adaptation to changes of market characters.

 

[OddTrader]

Quote from nononsense:

To a profitable trader, an edge is very personal, like a girl he loves.
In trying to express what an edge means to him, this simply would take up too much of his time in order to bother with it.

Edges in the sense used in this thread are mainly loser's dream phantasies about magic wands to become rich.

I guess the importance would be having at least a little bit of luck periodically, besides some tools such as backtesting.

 

[OddTrader]

Quote from RunTrade:

The only reason that I can think of to quantify your edge, would be to exploit it when it is unusally strong. However, that may require near continuous calculations...or at least often enough to not be feasible. You would need a "base" number which is probably a mathimatical nightmare in itself.

I think many traders would have to constantly find out this kind of "magic" numbers.

 

[OddTrader]

Quote from OddTrader:

I fully agree. However, I also believe having edges does provide additional competitive advantages - meaning a potential for a better ratio of "return vs loss".

E.G. That is to say: Prediction is not necessary if targeting small profits, however it would be very important if targeting good profits.

 

[slacker]

Quote from RunTrade:

The only reason that I can think of to quantify your edge, would be to exploit it when it is unusally strong. However, that may require near continuous calculations...or at least often enough to not be feasible. You would need a "base" number which is probably a mathimatical nightmare in itself.

Other reasons to quantify your edge it to be able to know when it no longer exists and to size your position according to the strength or weakness of the edge.

A useful metric can be calculated very easily. A simple description on how to identify when to stop trading if the edge stops working was posted by acrary.

The entire thread was very interesting but the Acrary post on 11-19-02 10:03 PM was best.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=11054

Too bad acrary is away doing other things....

Is edge the same as the inverse of risk? Edge is gone when the risk becomes too high for the trader to succeed. Someone with an edge is trading at low risk, right?

Good luck

 

[kut2k2]

Quote from OddTrader:

Can we measure Edge?

Do you have anything in mind that could be used to measure an Edge with quantitative terms?

Any pointers?

All comments would be appreciated.

"Edge" is just a synonym for positive expectation aka a winning trading strategy.

Want an edge? Get the following:

A strategy with a backtest of at least 30 trades after subtracting the number of optimized parameters;

A net profit at the end of the backtest;

A greater profit than you'd have gotten from simply buying and holding.

If you are missing any of those three components, you do not have an edge in trading.

All other definitions of "edge" wrt trading are crap.

 

[nononsense]

Quote from OddTrader:

Thanks for your revelation above.

Hope this helps. Only few seem to have grasped this.