The Market's House Edge! :(

[murray t turtle]

Quote from OldTrader:

Actually I think you missed his point. He used the "spread" to calculate the house "edge". He didn't factor in commissions. So the bottom line is that had he factored that in there is a bigger edge against the trader.

But I do agree....personally I wouldn't be playing a "random" method. I'd like to be much more selective about my entries and exits.

Finally, I agree with one other thing. I think the game becomes much more difficult at very short term moves and/or scalps. My opinion. And I think a part of that is the spread plus commissions. I'd rather play a bigger game myself.

OldTrader

====================
Was thinking along the same lines;
even the indexes are figured wirhout any comissions.

However , unlike stockbrokers,the casinos are quite open about thier hatred of card counters, which they & thier private detectives consider undesirable ''customers''

 

[Samson77]

You forgot to factor in commissions, this is only half of the story.

I have long believed that the markets where never a zero sum game and that the if you calculated the amount of commission paid every day by every retail trader it would be very shocking!

 

[Remiraz]

Quote from Samson77:

You forgot to factor in commissions, this is only half of the story.

I have long believed that the markets where never a zero sum game and that the if you calculated the amount of commission paid every day by every retail trader it would be very shocking!

Quote from Remiraz:

Now for trading. Assume the minimum 1 tick spread, 1:1 risk:reward and random entry (fair system):

I did. By assuming no comms. LOL. Because the comms is different for everyone its hard to count but the spread is the same for all. Also $4 RT comms might have different tick value in different market. Hard to count. Or maybe i'm lazy.

 

[Bernard111]

Don't you think that our edge change dynamically as soon as the trader change his stoploss with a trailing stop?

The idea behind this thread is the stoploss is fixed and unmovable as with the target and the edge house is the same during all the time of the trade.

- So what about the change of the edge when you trail your stops (should the position move in your favor)?

 

[psytrade]

Remiraz,

It took me a couple of minutes to think about this and then I realized. Isnt the house edge more like noise than an edge? Or do you think its best to call it an edge? Im sure this comes in handy when developing high frequency trading systems.

 

[Bernard111]

Anyone willing to partecipate to the latest 2 posted questions?

 

[Mike805]

Remiraz,

You make some bland and incorrect assumptions when trying to calculate a "house edge".

While I strongly believe that no such thing as a "house edge" exists in trading, I will go over some fairly basic rules of probability distributions and the way in which supply/demand ideas relate to them. This will hopefully to be to your benefit:

Psychology and price movement are not random. In fact, they fall into certain types of probability distributions day in and day out. Long term and short term supply/demand control these distributions and quantities of each force can be analyzed to find statistically significant behavior.

If you understand the above, then you only trade when the "odds are in your favor" so to speak. In fact, there are many times when the odds will be overwhelmingly in your favor depending on which price points you chose to trade (this idea along with a solid psychological make up are the keys to consistency).

As far as trailing stops, I do not use them. I only adjust my stop to breakeven after enough gain on the trade.

Mike

 

[CoralReef]

Quote from Mike805:

Remiraz,

You make some bland and incorrect assumptions when trying to calculate a "house edge".

While I strongly believe that no such thing as a "house edge" exists in trading, I will go over some fairly basic rules of probability distributions and the way in which supply/demand ideas relate to them. This will hopefully to be to your benefit:

Psychology and price movement are not random. In fact, they fall into certain types of probability distributions day in and day out. Long term and short term supply/demand control these distributions and quantities of each force can be analyzed to find statistically significant behavior.

If you understand the above, then you only trade when the "odds are in your favor" so to speak. In fact, there are many times when the odds will be overwhelmingly in your favor depending on which price points you chose to trade (this idea along with a solid psychological make up are the keys to consistency).

As far as trailing stops, I do not use them. I only adjust my stop to breakeven after enough gain on the trade.

Mike

Isn't supply and demand constantly changing by the minute making s/d statistically insignificant?

 

[Mike805]

Quote from CoralReef:

Isn't supply and demand constantly changing by the minute making s/d statistically insignificant?

A 1 minute chart is too short of an interval, longer term buyers and sellers do not change their intentions in minute time frames.

I'm not sure if you understand the basic concepts of price/volume analysis. Markets trend, oscillate, trend, oscillate, etc, etc... imbalances of supply and demand create trends and the current value of the market is the mean of the price/volume distribution.

 

[LoosenUp]

Quote from Mike805:

Remiraz,

You make some bland and incorrect assumptions when trying to calculate a "house edge".

While I strongly believe that no such thing as a "house edge" exists in trading, I will go over some fairly basic rules of probability distributions and the way in which supply/demand ideas relate to them. This will hopefully to be to your benefit:

Psychology and price movement are not random. In fact, they fall into certain types of probability distributions day in and day out. Long term and short term supply/demand control these distributions and quantities of each force can be analyzed to find statistically significant behavior.

If you understand the above, then you only trade when the "odds are in your favor" so to speak. In fact, there are many times when the odds will be overwhelmingly in your favor depending on which price points you chose to trade (this idea along with a solid psychological make up are the keys to consistency).

As far as trailing stops, I do not use them. I only adjust my stop to breakeven after enough gain on the trade.

Mike

Hi Mike,

If you do not believe in house edge, do you always use market orders to get in your trades? And, are you a daytrader or longer term trader? I tend to agree with Remiraz that there is actually some sort of house edge because the real price is something in between bid and ask, and if you always pay up as in market orders, you would be incurring extra costs. However, I also think that in volatile times, when there is a need to get in and get out quick, I still use market orders. Put it this way, I would bargain for better prices if I am not in a hurry. Would like to listen to other's views.