The thing about edge

[tradingjournals]

For a moment, think of things from the point of view of a single futures contract. A contract is born when a short seller sells it to a buyer. It leads to at least four commissions paid, plus the commissions paid during its travel moving from one hand to another if changes hands.

So at the end of its life that contract have put money in the pockets of some, and took losses from the pockets of some, and it paid commissions to the brokers. Notice that the bid/ask spread does not exist from the perspective of a single contract.

If one repeats the reasoning for all contracts that were ever traded, we have a set of people who made money and a set of people who lost money, with both camps paying commission which is twice the volume of trade.

Now some remarks. If a market is say flat ( I mean here really flat) we have some interesting conclusions: did anyone win? If yes who? If no, where did the money go?

We can continue this analysis by looking at life from the point of view of single contracts. I find it fascinating.

 

[llIHeroic]

My thought about edges while reading through this thread is that people in general, and in this case traders, usually will find what they are looking for with enough time and inclination.

Traders looking to sabotage themselves on some level will eventually find a way to do so. Traders looking for a 30% WR "system" with a positive expectation will probably find one as well if that's really what they're looking for. Traders that simply won't settle for a low win-rate will develop a better one.

Personally, I desire to continually develop a deeper understand of the markets. I'll be the first one to tell you that I still have a long way to go, but why settle for less?

--

I used to play cards. If I thought my percentage chance of winning the hand were greater than the percentage of chips I would have to put into the total pot to keep playing, I would do so.

People seem to want to play the market the same way for some reason, and even though it doesn't have to be that difficult, it's almost like they don't want to make it any easier on themselves.

Trading is like shoving every turn with both hands face up, and taking all your chips back the instant you don't hit the river. It took me about two months to realize that there's no catch.

 

[tradingjournals]

Quote from Gringo:

The account value did decrease (or failed to increase) for one party and gained (or failed to decrease) for another.
Gringo

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

It could also decrease for both parties! Pointing it mainly for the sake of intellectual completeness as I think your post is well thought out.

 

[NoDoji]

Quote from tradingjournals:

One person (people say she is a woman) indicated that one has to think of trading as a river. There is enough for all, and added that she gets paid for her time in the market. The people who lose also spend time, and they drown in the river because someone has to down for someone to win and for the broker and market maker to earn. This is not about time spend and hard working and all the empty assumptions: It is about risk in a zero sum game.

The people who lose drown in the river because they haven't studied rivers, don't know how to swim safely in the river.

A few years ago I spent most of each trading day with a small Skype group. One guy who knew my trading method completely would often enter the same position as I did at the same time, yet he rarely if ever held for the minimum profit target. Was he a losing trader because it's a zero-sum game and the market would only allow one of us to ride our little piker position to a 20- or 30-tick profit? I don't think so.

Both of us jumped in together.

I let the river carry me to my destination, planning to exit only if the conditions became dangerous.

He decided it was a bit too cold and turbulent for his comfort zone and jumped back out.

 

[bighog]

Quote from tradingjournals:

For a moment, think of things from the point of view of a single futures contract. A contract is born when a short seller sells it to a buyer. It leads to at least four commissions paid, plus the commissions paid during its travel moving from one hand to another if changes hands.

So at the end of its life that contract have put money in the pockets of some, and took losses from the pockets of some, and it paid commissions to the brokers. Notice that the bid/ask spread does not exist from the perspective of a single contract.

If one repeats the reasoning for all contracts that were ever traded, we have a set of people who made money and a set of people who lost money, with both camps paying commission which is twice the volume of trade.

Now some remarks. If a market is say flat ( I mean here really flat) we have some interesting conclusions: did anyone win? If yes who? If no, where did the money go?

We can continue this analysis by looking at life from the point of view of single contracts. I find it fascinating.

WTF does all that crap have to do about a winning method?

My only concern about commissions are: What is my cost per round turn Mr. Broker? Ok, I can work with that, will fund the account and we can do business.

When I buy a box of shredded wheat biscuits I care less what the transportation costs were, what the cost of the packaging is, what the cost to the farmer for the wheat itself cost, the advertising costs, the labor costs..........it can be endless.

Commissions are a cost of doing business, deal with it on your end and forget all the other silliness. Take a valium and a shot of booze, you need to get a grip on what the fuck you are trying to comprehend.

 

[tradingjournals]

Quote from bighog:


When I buy a box of shredded wheat biscuits I care less what the transportation costs were, what the cost of the packaging is, what the cost to the farmer for the wheat itself cost, the advertising costs, the labor costs..........it can be endless.

You could care less, but it does not remove the fact it is you who pays for those things. I did not see other items in there such as the profit margins of all the entities that were involved in the life and trips of your biscuit, the landlord rents, etc. However in this case the price of your biscuit is worth it as it is less than you would spend if you were to do it on your own, and it is delicious and feeds you.

But the guys who were involved in your biscuit cared very well about the prices of things that went in there. If they did not, they would have been priced out and you would not have bought from them. What is their reward? A piece of the cash you paid for your biscuit.

The market economy cares for people who do not care less, as long as they are the customers, because competition reduces prices.

That is the genius of the market economy: people do not have to worry about the prices of thing they buy if it is for consumption. The rules of the game (competition), and human desire to maximize their earnings would deal with prices.

 

[dbphoenix]

Quote from Gringo:

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.

Actually no, it's not based on semantics; it's based on systems which lend themselves to zero-sum, and the market is not one of those systems.

I'd go on with this, but the fact is that only three or four of the participants in these three "edge" threads are profitable traders, so who cares what somebody who can't trade thinks about edges, much less whether or not the market is "zero-sum"? If the losing trader had an edge, he wouldn't be a losing trader. Instead he comes up with silly edges in order to prove that they don't exist and therefore he's off the hook for his failure.

I will say, though, that those who insist that the market is zero-sum create for themselves a perception of the market and of trading that is extremely unhealthy and will only perpetuate their failures. There is no battle, the market is not out to get anybody, a profitable trade is not a "win" (and I'm as guilty as anyone in using the term). Profits are made when one opens himself up to what the market is willing to give. That the market regularly telegraphs its desires is a given. That these messages fail to register with the failing trader is also a given.

 

[wrbtrader]

Quote from dbphoenix:

...I'd go on with this, but the fact is that only three or four of the participants in these three "edge" threads are profitable traders, so who cares what somebody who can't trade thinks about edges, much less whether or not the market is "zero-sum"? If the losing trader had an edge, he wouldn't be a losing trader. Instead he comes up with silly edges in order to prove that they don't exist and therefore he's off the hook for his failure...

wow

-1

 

[candles]

Quote from dbphoenix:

only three or four of the participants in these three "edge" threads are profitable traders

I'd say it's more likely 'zero'. 'Three or four' is terribly optimistic.

There's about 5 or 6 on elitetrader, and none of them have posted in any of the current edges threads yet.

 

[kut2k2]

Quote from candles:

I'd say it's more likely 'zero'. 'Three or four' is terribly optimistic.

There's about 5 or 6 on elitetrader, and none of them have posted in any of the current edges threads yet.

You've been here nine years and you aren't profitable yet? Wow. Sucks to be you.