The thing about edge

[dbphoenix]

No, it's not a zero-sum game. To begin with, the laws of thermodynamics do not apply to financial markets. Second, this is not cutting cards but trading. There is no finite supply of contracts or shares or whatever. There is no finite supply of traders. There is no finite supply of dollars or whatever.

Yes, one person can lose while another wins. They can also both lose. They can also both win. There need not be an equal win for every loss.

All of which is I assume off-topic. Those who are interested can google "zero sum fallacy".

 

[dbphoenix]

Quote from kut2k2:

But you said you disagree with point one. Positive expectation is necessary for consistent profits. What's the disagreement?

The arguably rare quality part, though by now I've lost track of the discussion.

So how many trades do you use to determine winrate and consistent profitability?

Depends on the requirements of the trader. I suggest a year's worth of days if daytrading. If daily or weekly, a bull/bear cycle.

People were performing successful tape reading long before charts came along. The notion that only charts can provide good trading signals is a strange one

True. But if one is backtesting T&S without actually looking at a T&S display, the same caution applies.

 

[xelite777]

Quote from dbphoenix:

Or the price does in fact fall, after which the CEO covers his short at a profit by selling it to you. You buy it expecting that price will rise, which it does.

You both make money.

Yes, but If I buy the contract and the price rises, now SOMEONE ELSE must pay me.

So yes we both made money, but it is still a zero sum game, for each winner there is a corresponding loser.

Anyway.

 

[llIHeroic]

Quote from Gringo:

This reduction in gain or profit is shifted to 'You' who was long the futures and taken from the company.

You're correct on how the money in my example is distributed between each party, but I think our difference in perception is highlighted by the fact that you've emphasized 'taken'.

The company gladly paid the cost of their un-materialized gain to me in exchange for the 'service' of me holding the risk which they didn't want. The point I was trying to make is that they aren't a loser here.

The company produced goods from raw materials and we are both sharing in the benefits. This is how I see markets. The losers are a small part of the picture, it's nowhere near zero-sum to me. We use our time, talents, and resources to produce goods and services, and many share in the fruits of the labor. Trading is just one way for individuals to take part in the process.

Perhaps this is a slightly unique view of the process we're taking part in, but hopefully I've been able to elaborate it a bit further with additional clarity.

 

[dbphoenix]

Quote from xelite777:

Yes, but If I buy the contract and the price rises, now SOMEONE ELSE must pay me.

So yes we both made money, but it is still a zero sum game, for each winner there is a corresponding loser.

Anyway.

And so the price continues to rise and the buyer sells it to somebody else. You both make money.

There is no corresponding loser unless all the components are placed in a closed system. The financial markets are not a closed system.

 

[drownpruf]

Quote from dbphoenix:

No, it's not a zero-sum game. To begin with, the laws of thermodynamics do not apply to financial markets. Second, this is not cutting cards but trading. There is no finite supply of contracts or shares or whatever. There is no finite supply of traders. There is no finite supply of dollars or whatever.

Yes, one person can lose while another wins. They can also both lose. They can also both win. There need not be an equal win for every loss.

All of which is I assume off-topic. Those who are interested can google "zero sum fallacy".

lol.

 

[dbphoenix]

Given these concurrent threads on edges, I have to wonder how many people are actually doing the necessary research and testing to find one.

Just sayin'

 

[Gringo]

Quote from llIHeroic:

You're correct on how the money in my example is distributed between each party, but I think our difference in perception is highlighted by the fact that you've emphasized 'taken'.

The company gladly paid the cost of their un-materialized gain to me in exchange for the 'service' of me holding the risk which they didn't want. The point I was trying to make is that they aren't a loser here.

The company produced goods from raw materials and we are both sharing in the benefits. This is how I see markets. The losers are a small part of the picture, it's nowhere near zero-sum to me. We use our time, talents, and resources to produce goods and services, and many share in the fruits of the labor. Trading is just one way for individuals to take part in the process.

Perhaps this is a slightly unique view of the process we're taking part in, but hopefully I've been able to elaborate it a bit further with additional clarity.

Zero-sum game is based on the gain/loss of funds shifting from one party to another. Your assertion that they gladly accepted that loss to curtail their risk is understandable, but takes the gain/loss to the realm of the emotional state of the participants. A zen master might not care one hoot whether the futures he bought or sold for whatever reason lost or gained in value. He's emotionally detached and unconcerned. This doesn't mean there was no shifting of those gains or losses from one party to another. The account value did decrease (or failed to increase) for one party and gained (or failed to decrease) for another. Whether the participants were detached from the outcome has nothing to do with the shifting of wealth.

Gringo

p.s Lets get back to the real topic which was related to edge.

 

[kut2k2]

Arbitrary claim here.

You need a minimum SAS of +0.1 to have an edge.

SAS == 4*k*max[ 0, E ]*PF*min[ 1, N/mant ] ,
where
SAS is the System Achievement Score,
k is the full Kelly fraction,
E is the expectation,
PF is the profit factor (see below),
N is the number of trades in the performance evaluation,
mant is the minimum acceptable number of trades.

PF is the ratio of the gain total to the absolute value of the loss total.

PF == sum[ max[ 0, Ri ] ]_i=1toN / sum[ max[ 0, -Ri ] ]_i=1toN

Ri is the return (%) of the i'th trade.


OK, I've donned my asbestos armor. Flame away.

 

[Gringo]

Quote from dbphoenix:

There is no corresponding loser unless all the components are placed in a closed system. The financial markets are not a closed system.

I'll have to think about this one. I would assume though that an open system probably isn't zero-sum. It would either be a positive-sum or negative sum based on net funds coming in or going out. But this is going to take some thinking to clarify even to myself.

The individual group of transactions may remain zero-sum but the system may not remain zero-sum because of not being closed.

So the discrepancy that's causing this furor is a difference is semantics.

Your definition of zero-sum is focused on the entire system, while most of us have been arguing and giving explanations based on a group of transactions. Although these transactions successfully indicate the zero-sumness of those transactions, they fail to see that in an open system a net shift in the game might take place altering the zero-sumness of the net system itself.

Gringo

Edit: Sorry kut2k2. Couldn't resist.