The thing about edge

[xelite777]

Quote from kut2k2:


There are things that can enhance your positive expectation, things like good money management

At the roulette, the casino has a 5.4% edge if you bet on the numbers (1 to 36 and 0 and 00) and no money management in the world can change that percentage.

Same thing with trading, you cannot change your edge with "good" money management, because "good" money management is ALREADY one of the components of your trading system.

In other words, for each trading system (assuming its rules are clearly defined), there is an OPTIMAL money management. Deviate from your optimal money management, for example bet more or less or change the value of the stop (or trailing stop) and you will degrade the performance of your trading system. In fact, your average profit per trade can even become negative, even if you have a winning trading system.

Quote from kut2k2:
and lower commissions.

Absolutely, lower commissions and/or spread can greatly enhance your average profit per trade while reducing the drawdown. It can even turn a losing system into a winning system in some cases.

 

[kut2k2]

Quote from dbphoenix:

It's not especially difficult to determine who trades and who doesn't when it comes to things like this. It's also not especially difficult to understand why so many people fail for so many years. Though one wonders why at some point at least some of them don't stop and look at what they're doing and think fuck this and search for a better way.

Be that as it may, I've never encountered anyone who has a 30% winrate who can resist the temptation to cut his profits short if for no other reason than he finally has some. A 30% winrate does not mean after all that one loses two and wins one, then loses two more and wins another one. It can quite easily mean that one loses ten, or twenty, before coming up with a winner. And we are to believe that this individual when he finally gets his winner is going to let it run? Please.

But let's assume that this guy is disciplined and cuts his losers short as well. So he cuts his losers short and cuts his profits short. Even here he can make some money IF he has a relatively high winrate. But if he has a 30% winrate, he will before too long go broke. It's simple arithmetic.

Amazingly this appears to be little discussed if at all in the Psychology forum. :eek:

 

[blakpacman]

None of us have any "edge." We only have strategy.

 

[dbphoenix]

Quote from NoDoji:

From what I've seen, db teaches you how to trade. I had no idea he started calling his trades.

I'm simply shocked that someone who states "Just exit the short when the supply line is broken and take the first long thereafter" bought the NQ at 3400 and never switched to the short side during 6-day move to 3300 (which, for some unknown reason, hasn't yet occurred on my daily chart).

Wait, I think I know what db did! Although he's teaching day trading using a 1-min chart, when he went long at 3400, just a few ticks from the top (back then), instead of going short when the demand line was broken, he decided instead to utilize the professional trader's method of avoiding losses by allowing a day trade to become a swing trade!

Actually we trade together. The first trade after hitting 3400 (I pointed out this level last July) was a short, 95.25 to be exact. The "giant selloff" referred to was the next day. And it fell eventually to 3310, not 3330. Nobody was long at 3400 since 3400 was hit in the middle of the night.

I suppose the obsessed might reconstruct all this, but who cares?

And given that we're sitting at 3420, 3400 was not "a top".

 

[xelite777]

Quote from blakpacman:

None of us have any "edge." We only have strategy.

??

Here is a strategy : sell when RSI is at 80 (overbought), buy when it's at 20 (oversold).

Test it in Forex, this strategy gives you NO edge.

So yes every trader has a "strategy", but it does no mean that his/her strategy has any mathematical edge.

 

[dbphoenix]

Quote from kut2k2:

Amazingly this appears to be little discussed if at all in the Psychology forum. :eek:

Traders have been sold a bill of goods. Somehow this Tharp nonsense has become common wisdom. Magee pointed out the flaw I mentioned back in the 40s, but we all know the world began in 1994.

People buy into it largely because they have no idea how to trade, and the proposition that they can win by having a 30% winrate sounds pretty good. Sounds pretty good in the second year, too. And the third. And the fifth. And the eighth. And the thirteenth.

 

[bpatson]

Edge is easy to find - plenty of instruments have a built-in edge.

 

[xelite777]

Quote from bpatson:

Edge is easy to find - plenty of instruments have a built-in edge.

Really? Like what?

Unless you are talking about these kinds of instruments

 

[kut2k2]

Quote from blakpacman:

None of us have any "edge." We only have strategy.

You're in the wrong thread. People who want to discuss the existence of edge should go here:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=279873

 

[dbphoenix]

Quote from kut2k2:

You're in the wrong thread. People who want to discuss the existence of edge should go here:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=279873

Speaking of psychology, I think it's informative that few can agree on what an edge is (five, so far) yet everybody thinks they have one. Probably why they're all making tons of money and getting ready to retire.