What they also have...
Although other folks, like retail FX, have a much better sample.
Topsteptrader
- Thread starter deaddog
- Start date
Although other folks, like retail FX, have a much better sample.
A real life example, quoting from another thread:
No it isn't OK. TST should offer you the LTP. If you fail, no harm, if you pass, it just shows that 17 bucks doesn't make any difference....You missed the target by 0.033%...
I've talked about this before. I basically break down edge into two categories. A hard edge and a soft edge. The hard edge is measurable for the most part. And there are three categories. One is order flow. This can include capturing the spread on an option (market maker) or capturing the spread on an over the counter structured product and also includes the old days where floor traders could capture ticks from broker flow. Second you have cost of business. So if I can borrow money at a lower interest rate that creates value in swap trades and various interest rate products. If my commissions are the lowest in the business or if I'm getting paid for order flow. The third is technology. Obviously HFT falls into this area.
What the hard edges have in common is that they are quantifiable. They are not easily attainable to the masses. And they provide an immediate impact on your cash flow. In other words, they exist in the present tense.
The soft edges are similar but are not as easy to quantify and usually carry slightly more risk. They also do NOT exist in the present tense. Examples of this are various types of arbitrage although some forms of arbitrage can qualify as a hard edge if the gain is immediate. Another soft edge is information. Now usually this is thought of as "inside info" which certainly can be, but I'm talking more about information about either customer flow, large orders at banks, economies of scope, etc. Also in this category is statistical arbitrage, risk arbitrage and stat correlation. These are trades where expected values can be easily quantified but they are not risk free. You "expect" to profit over large samples of trades based on mathematical pricing models. The category of soft edge also can be described as hard to attain for the masses.
Both these types of edges (hard and soft) are difficult to attain and difficult to maintain. They require usually large investments in capital and labor. They are not easily transferable. And for the most part, they can be measured.
Things that are NOT an edge. Technical analysis. Fundamental analysis. Trading from your gut. Backtesting. Selling options. Trading with the trend. All these things you hear on ET. Now, I said this before and I'll say it again, one does NOT need an edge to make money. Also making silly comments about "I've been doing this for 10 years I guess I got lucky" are useless. And I'll prove why.
What if I told you I have been trading since 2011. And over the last 3 years I basically have had no losing months. I'm up close to 80% or so. And I've had no major drawdowns. Do I have an edge? Do I? What If I revealed to you all I did was buy the S&P 500. See, this is my point. One can make money without an edge.
What If I told you I have been in the markets for 30 years. And over the last 30 years I made money EVERY SINGLE year. Virtually no drawdowns. Do I have an edge?????? What if I revealed to you I owned a 30 year Bond and bought the bond in 1984 when long term rates were at 15% and I made 15% a year every year plus the return on my bond which probably doubled that return. Are you starting to follow? See one can do all sorts of things to generate a profit. You can flip burgers and make a profit. But flipping burgers is not an edge either. I like to categorize all these things where one earns what the market offers as an index return. An index return does not mean you are long an index but I use it synonymously with earning a market return. Anyone can earn a market return. It requires no skill. Also you have to do is buy it and takes your chances. Owning a house falls under this category as well. And no, home ownership is not an edge either. But buy buying a home, you are earning an index return. A lot of people are capturing an index return without realizing it. An option seller for example is really a long index owner in disguise. He thinks he is dazzling people with his talents but really he is simply a passive index investor.
So one can make money every year, year after year, without an edge. They might fool themselves and their family into thinking they have some secret talent but in reality, they are simply getting what the market is offering. No more. When I have time later I will go into detail how one can measure and determine if they actually have an edge or if they are really just synthetic index participants.
protracted PA, blotter
The issue I have with the current model is the maze of rules for each combine and each level upon passing the combine. Apparently, I'm not the only one who found out about one of TST's rules after the fact.
For example, austinp wasn't aware that he would qualify for a rollover even if he did not meet the profit objective.
Another example is the op who got sent back to the combine without knowing about the "additional rules" of a funded account.
Another trader apparently qualified for a rollover and missed getting funded by one lousy tick, and thought "it was ok."
Here's a statistic to measure: The number of traders who either passed ANY of the combines OR qualified for a rollover by doing either of the following:
1. Averaged into a loser that ended up being a winner.
2. Averaged into a winner before being up $500 or $1,000 (depending on the combine traded).
You CAN trade that way in the combine, but you CANNOT in the funded account until you reach the profit goal and become a Senior Trader.
The backer is basically saying: "Ok trader, show me what you've got." So you then trade the combine within the parameters and with the intentions of getting funded, and then they're saying, "Ok, now I'm funding you, here's a new set of rules."
I've already stated that the rules ARE in fact mentioned within the FAQ's on the site, but one has to dig through them.
However, if you're the backer, why wouldn't you want traders to mimic the rules and profit objectives during the combine that coincide with the rules and profit objecitves you want to see in a funded account?
So there is an obvious disconnect within the rules.
Why not?
I do not understand how statistical arbitrage or correlation is a soft edge, but technical analysis is not. To me, they're two sides of the same coin or the same dice if you will.
They all have in common that they use past price and volume to forecast future price moves or price relationships.
Please explain the difference to me.
Is the ACD method an edge?
I would need more details about your trading operations in order to answer that.
I don't think you defined what a soft edge really means. You also talk about risk and I agree that risk is an important factor to consider.
Nothing is risk-free though, save government bonds (in theory).
As I mentioned in my thread about day trading, for day trading (or any trading) to be worth it to me, I would never be satisfied if I were assuming substantial risk and putting in massive hours per week only to barely break even and maybe not even matching the S&P.
Not really. This is just common sense to me.
Well, there's a difference between day trading day after day, year after year, making money and holding bonds for 30 years, no?
Can you do the former without an edge?
The term edge still remains nebulous to me, save your definition of an hard edge. Maybe one could call that a structural edge. Having a seat at an exchange would be one example of a structural edge, right? Or being a specialist at NYSE. At least back in the day.
I've heard people say that if you have a positive expectancy, you have an edge, but I don't think that's right either.
You would need to have both a positive expetancy, beat the market and be compensated for the risk you're assuming, in order to have a soft edge.
If not, simply buy S&P and do something else instead.
See above.
But are not the probability estimates used to derive the expected value subjective?
And if they are subjective, is not the ability to come up with reasonably accurate estimates a skill - a competitive advantage - an edge? One may use a methodology to arrive at decisions (ACD), but is not the 'quality' of the decision itself an edge?
I recall Jim Leitner's interview in 'Inside The House of Money' where he talked about options sellers probably high fiving each other because they had just sold him expensive long duration options. But while the market makers (your hard edge) delta hedged and locked in their return, Leitner belives he often comes out ahead in these deals because long dated options cannot be reasonably priced using normal distributions. Of course, he uses judgement in establishing what is mis-priced - but then that brings us again to the expected value issue.
You make an important point - it really is easy to believe one has skill, despite merely riding the index wave. But if one's risk adjusted returns are far greater than the index, and if one does not have a hard edge, then there cannot be any differentiation between expected value and soft edge. All asset pricing is based on expected value.
<i>"Well, there's a difference between day trading day after day, year after year, making money and holding bonds for 30 years, no?"
"No. Money is money. If I make 20% a year in bonds or daytrade and make 20% a year adjusting for taxes and costs, it's the same thing." </i>
worthless analogy: many traders have made 20% annual thru lots of different "edges" but no one on earth has ever bought & held 30yr bonds for 20% annual returns over time. Please! If that were even remotely possible, short-term trading would not exist.
A professional gambler's "edge" is mental ability to count cards in blackjack or assess % win probabilities in poker. By mav's definition of "edge" there ain't a single WSOP champion who has an edge, and lots of those players have made eight-figures in their careers.
Mav, your personal definition of a trader's "edge" means literally nothing to anyone else. It is merely your own personal opinion, that's all.
"No. Money is money. If I make 20% a year in bonds or daytrade and make 20% a year adjusting for taxes and costs, it's the same thing." </i>
worthless analogy: many traders have made 20% annual thru lots of different "edges" but no one on earth has ever bought & held 30yr bonds for 20% annual returns over time. Please! If that were even remotely possible, short-term trading would not exist.
A professional gambler's "edge" is mental ability to count cards in blackjack or assess % win probabilities in poker. By mav's definition of "edge" there ain't a single WSOP champion who has an edge, and lots of those players have made eight-figures in their careers.
Mav, your personal definition of a trader's "edge" means literally nothing to anyone else. It is merely your own personal opinion, that's all.