This "edge" stuff
- Thread starter BertH
- Start date
I disagree. If TA is not an edge, then I guess I dont have one.
Sense I dont use the news to determine if I should enter a trade
or not, I use charts, S/R..triangles..trend lines..ect..
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NTB says that an edge is an advantage. I never really
understood that. What advantage is a retail trader supposed to
have over the 4.0 GPA Market Wizards on Wallstreet?
They are more educated than the average trader, more
intelligent, and have deeper pockets than we could only dream
of. They have faster, more reliable information, faster executions,
lower commissions... No wonder most traders wash out. Kinda
hard to compete with that I think.
- nathan
Liked these posts although as always our varied predjudices show up. Re the edge=advantage wrt to big players you have a niche possibility because you can play in places that might not make sense to a hedgefund etc.
To me there are lots of components to my "overall" edge. It needs my brand of TA to give me >50% chance of getting direction right over my timeframe, good trade management to get more for my winners than my losers (if my edge isnt in the 80% right range), and good money management to survive the bad times so that my edge can play out.
You still need the overarching edge of "following your method with iron discipline" to make everything else work for you imho. Lack of discipline will randomize the best of edges and 50/50 creates a personal negative sum game.
Yes... when I think of the word 'edge' as it applies here I think of statistical probability, kind of like in casinos how the house has an 'edge' over you... namely statistically the games are in their favor... the thing is, casino games etc are all based on statistical probability that can be calculated and is known.
When applying that type of concept to trading.. there are many "soft" or qualitative quantities including discretion and discipline and psychology that, while they attribute to the overall edge, are very difficult to quantify. But I think we all have the right idea.
The quantitative measure however I think is expectancy... positive expectancy = your edge. How do you know your system is positive? Or will remain positive? Hard to say... nothing can be known 100% but through backtesting and forward testing, adoption, and improving as a trader, expectancy is increased...
When applying that type of concept to trading.. there are many "soft" or qualitative quantities including discretion and discipline and psychology that, while they attribute to the overall edge, are very difficult to quantify. But I think we all have the right idea.
The quantitative measure however I think is expectancy... positive expectancy = your edge. How do you know your system is positive? Or will remain positive? Hard to say... nothing can be known 100% but through backtesting and forward testing, adoption, and improving as a trader, expectancy is increased...
BertH,
I think a good question for you to think about is:
1. What position would help you trade better? Trading in the floor? in a hedge fund? global institutional bank? Prop firms?
2. What kind of equipment would help you trade better? A gazillion teraflop computer? Direct connection to the exchange? Dozens of computer screens?
3. Other stuff that would help you trade better? Regardless of it being legal... Inside info on something? Programming skill? Math PhD?
After all of that thought...
Given all the resource and equipment in the world. How would you change the way you trade? How would you apply all those gadgets and pirks to be consistantly profitable?
Finally...
Do you have enough understanding of the financial industry to apply it well?
Random thoughts on common edges in no particular order:
1. Local Pit Trader A gets Filling Broker B laid on a regular basis at XYZ Massage Parlor. Filling Broker B gets an order from Hedge Fund to sell 50 SPM6 at the market. Filling Broker B is sloppy with the order and sells it down a handle to Local Pit Trader A who buys it leaning against a 500 lot bid below.- that's an edge
2. $/Eur Trader at Major US bank has $ 1 Billion overnight order from big Asian customer to sell $/Eur @ 1.2800. Market is currently 1.2785/90. He takes out a short position in $/Eur at 1.2790 leaning against the clean-up of his 1.2800 order.- that's an edge.
3. Stock Trader John was roomates with Syndicate Manager Steve of Bulge Bracket investment bank. Stock Trader John is getting six-figure allocations of IPOs and selling them out the first print- that's an edge.
4. Sam has an automated stock trading system that is based upon speed of execution. He has the fastest computers in the world, has written the most efficient code in the world, and he happens to connect to the exchange via intranet because he is physically located in the same building (i'm not an expert on this stuff, just making the speed as an edge example)- that's an edge.
5. Bob has found a firm based in bumfuck Europe that allows him to switch investments within his whole life insurance policy daily. He switches from US large cap. equity to European large cap. equity to money market, etc. with no penalty and no limits. The insurance company is so antiquated that he realizes that they don't account for the changes in the currency movements. He figures out a way to arbitrage the movement in the currency by switching in and out of certain investments based upon stale currency fluctuations- that's an edge.
6- Bill G. has more capital than anyone in the world and therefore has the most staying power- that's an edge.
7- Stevie has better contacts for information flow than anyone in the world and can utilize that information to directly turn profits- that's an edge
8- Stacey has built a better mousetrap (not just claims she did)- that's an edge
9- John is the smartest guy in the world- that's an edge
10- Mike claims to understand the fundamentals of stocks, studies technicals and practices good risk management- not an edge- show me the money- prove yourself over 20 years.
Many more too many to list, you get the idea...
1. Local Pit Trader A gets Filling Broker B laid on a regular basis at XYZ Massage Parlor. Filling Broker B gets an order from Hedge Fund to sell 50 SPM6 at the market. Filling Broker B is sloppy with the order and sells it down a handle to Local Pit Trader A who buys it leaning against a 500 lot bid below.- that's an edge
2. $/Eur Trader at Major US bank has $ 1 Billion overnight order from big Asian customer to sell $/Eur @ 1.2800. Market is currently 1.2785/90. He takes out a short position in $/Eur at 1.2790 leaning against the clean-up of his 1.2800 order.- that's an edge.
3. Stock Trader John was roomates with Syndicate Manager Steve of Bulge Bracket investment bank. Stock Trader John is getting six-figure allocations of IPOs and selling them out the first print- that's an edge.
4. Sam has an automated stock trading system that is based upon speed of execution. He has the fastest computers in the world, has written the most efficient code in the world, and he happens to connect to the exchange via intranet because he is physically located in the same building (i'm not an expert on this stuff, just making the speed as an edge example)- that's an edge.
5. Bob has found a firm based in bumfuck Europe that allows him to switch investments within his whole life insurance policy daily. He switches from US large cap. equity to European large cap. equity to money market, etc. with no penalty and no limits. The insurance company is so antiquated that he realizes that they don't account for the changes in the currency movements. He figures out a way to arbitrage the movement in the currency by switching in and out of certain investments based upon stale currency fluctuations- that's an edge.
6- Bill G. has more capital than anyone in the world and therefore has the most staying power- that's an edge.
7- Stevie has better contacts for information flow than anyone in the world and can utilize that information to directly turn profits- that's an edge
8- Stacey has built a better mousetrap (not just claims she did)- that's an edge
9- John is the smartest guy in the world- that's an edge
10- Mike claims to understand the fundamentals of stocks, studies technicals and practices good risk management- not an edge- show me the money- prove yourself over 20 years.
Many more too many to list, you get the idea...
What about negative edges? We really want those in a ratio of at least 20:1 to the positive ones.
__________________
No profits without losers.
another nononsense axiom