Is it important to define your edge mathematically? If so, how do you go about finding one?
- Thread starter Tall Mike
- Start date
Become a stat arb trader, collect data, build models, test, iteratively refine.
Most manual discretionary traders use their paper/trades as the basis of their model and system.
Many can get lost in the math of it all, others just focus on profits booked.
You’ll have to build discernment while you explore your path - that only comes through experience.
That's an interesting question.
In my opinion, an edge is defined by a consistent profitable record.
So, technically it could be defined by performance metrics/math/bunch of % on paper.
An edge, is something that helps a trader to win consistently over time.
But, in some cases may entail absolutely nothing to do with math.
As an example. Let's suppose a trader uses self-hypnosis, meditation and
other modalities for subconscious programming as an edge.
How would he define that in math? I don't believe he can.
And yet, that might be his true identifying component that
gives him an edge.
In my opinion, an edge is defined by a consistent profitable record.
So, technically it could be defined by performance metrics/math/bunch of % on paper.
An edge, is something that helps a trader to win consistently over time.
But, in some cases may entail absolutely nothing to do with math.
As an example. Let's suppose a trader uses self-hypnosis, meditation and
other modalities for subconscious programming as an edge.
How would he define that in math? I don't believe he can.
And yet, that might be his true identifying component that
gives him an edge.
I'm not trading anything yet.
I don't have enough confidence to risk my capital yet. I'm trying to figure that out.
Yes but …
You can tell how reliable is your source,
The more reliable the more you should bet.
It’s only important for sizing purposes.
If you don’t want to size optimally then it’s useless.
If you’re not willing to put 20% on the table then stick to your normal size of 1,2 or 5%.
For most traders the optimal bet size is 0%
You find an edge by extracting more money than you put into it. That’s what it means: It has Positive Expected Value. You’re paid more for the risk than what’s implied.
If you find a situation where you can win 60% a 1 to 1 reward to risk then you’ve found an edge.
A profitable, repeatable and scalable trade.
You find a sucker and you take his money.
At the right time + At the right place.
With the minimum skills required.
It’s like poker … Be tight agressive,
In a sea of deep pockets but drunk players.
Sharks smell blood.
Most of the time it’s capital preservation.
But fools are long gone when the real opportunity appears.
Look for easy dollars vs hard pennies environment.
Anyone can mak money in a bull market.
But few can keep it. Remember.
Find opportunities.
Define what it looks like.
& How you would exploit it.
Here you have your edge.
Before being mathematical it’s common sense.
No need to make shit looks scientific.
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That's smart!
How would you define using mathmatics in trading?
1. No, you just need to know you have one and how to execute it.*
2. One way is: a) lots of chart time; b) hypothesise; c) test your hypothesis; d) formulate mechanical rules; e) follow your rules; f) analyse your trades; g) improve.
IMO an edge can't be found ... without taking on risk of some kind.
Because trading is all about risk, so without it is - it is all just meaningless hypotheticals.