The Meaning of A Trading Edge
- Thread starter tradingjournals
- Start date
How long term?
First, there are different types of brokers. However, without getting too detailed...there's one type of broker used by investors/long term traders (e.g. your bank) and another type of broker used by short-term traders (e.g. Interactive Brokers). There's also a hybrid type of broker that caters to both investors while trying to lure in short term traders (e.g. etrade or Charles Schwab).
Regardless to whom you (investors and traders) choose...you still got to pay commissions and fees.
With that said, you've implied that you have an edge via not using the type of broker that caters to short-term traders. However, do you realize that someone can say that short term traders have an edge via not using a broker that caters to investors (imagine the ridiculous cost of day trading at etrade or your local bank).
Thus, couldn't it be said that a short term trader at Interactive Brokers is paying LESS commissions and fees per transaction than an investor at a Etrade that caters to investing.
Yeah...sure...buy/hold works better in the long term. However, most investors today rarely reach that long term status. They pull their money whenever shit hits the fan, needing money for kids education or to pay off some big purchased item (e.g. new car, new house, kids wedding).
Simply, buy/hold is not like it was when our grandparents was investing...where folks buy something and hold it for a few decades along with a fat pension plan. In contrast, these days, too many investors think buy/hold is a few months to a year...must be some commonality in the thinking process because these are the same folks that got into the real estate house flipping.
Regardless, we're all in the same boat because all the traders I personally know...they invest too (e.g. stocks, retirement plans sep/ira/401k, real estate et cetera).
Thus, you have an illusion that traders don't invest. Heck, I wouldn't be surprise if there are traders that are better investors than you.
Mark
The trading edge is the lowest quality descriptor of trading performance strategies. It usually involves being in the market only a small percentage of RTH's. It is also the highest risk type strategies. finally edge trading requires more work outside of the actual trading than any other trading approach.
In terms of who selects edge trading, it is usually only those who are trying to learn to "make money". Making money is the most unsuitable goal in all of trading.
Edges are the lowest level regarding the bar for entering trading.
Rarely are edges optimized or determined with respect to effectivenss or efficiency.
Edge is just a general term used to describe the fact of positive expectancy, eg. a statistical advantage.
Casinos make large profits because all their games have a built in mathematical edge on their side. Over the long term they will make more money than they lose. Period. If you don't have an edge (long term mathematical advantage) the best you can hope to do is break even. In trading though you won't even get that far because the odds are stacked against you to begin with (commish, slippage, emotions). Without an advantage you will lose money slowly, or all at once.
In the context of trading most people's edge is a system that they have tested an defined rigorously and have found to make them more money than they lose, giving them the advantage. This could be based on price action, canned indicators, fib numbers, phases of the moon, or their astrological sign...as long as it gives them a positive expectancy over the long term (yielding profit), its an edge.
Casinos make large profits because all their games have a built in mathematical edge on their side. Over the long term they will make more money than they lose. Period. If you don't have an edge (long term mathematical advantage) the best you can hope to do is break even. In trading though you won't even get that far because the odds are stacked against you to begin with (commish, slippage, emotions). Without an advantage you will lose money slowly, or all at once.
In the context of trading most people's edge is a system that they have tested an defined rigorously and have found to make them more money than they lose, giving them the advantage. This could be based on price action, canned indicators, fib numbers, phases of the moon, or their astrological sign...as long as it gives them a positive expectancy over the long term (yielding profit), its an edge.
For me, edge as applied to trading is something that separates the winners from the losers. Since I trade futures and they are a zero sum game, there's always winners and losers. Your edge is what puts you into 1 of the 2 groups.
As for what the edge is, as the above post says, it can be anything from indicators, tape reading, support/resistance, money management, risk management, etc etc.
IMO the real edge is HOW a trader uses whatever tools they have at their disposal to make money. It's amazing how you can present the same chart to 10 traders and get 10 different views on how to trade it. That's the beauty of the markets, some will be right, some will be wrong; the edge goes to those that can be right more than they are wrong.
As for what the edge is, as the above post says, it can be anything from indicators, tape reading, support/resistance, money management, risk management, etc etc.
IMO the real edge is HOW a trader uses whatever tools they have at their disposal to make money. It's amazing how you can present the same chart to 10 traders and get 10 different views on how to trade it. That's the beauty of the markets, some will be right, some will be wrong; the edge goes to those that can be right more than they are wrong.