To the OP if you had an edge you wouldn't be coming on ET acting like a child. Just another piker. You develop your edge through the school of hard knocks and knowledge.
Trading is all about discipline. Ha ha ha
- Thread starter WhiteOut56
- Start date
There is no such thing as an 'edge'. At best it only means that a person claiming to have an 'edge' has learnt a part more than the parts he thinks he already knows.
The whole day session is rich in points, particularly so in volatile markets (eg CL). So the amateur with limited capital, if wise enough, will concentrate his study and preparations where the money is. The moneys in the gyrations, the sequential swings up and down (or vice versa) from open to close. Applying a reliable methodology the amateur trader can begin the process of taking as many points as he or she can from each swing.
The chief considerations for taking good points from each swing are (1) the type of charts (time, range and/or volume bars) you use and (2) accurate use of any indicators you deploy to help you.
The whole day session is rich in points, particularly so in volatile markets (eg CL). So the amateur with limited capital, if wise enough, will concentrate his study and preparations where the money is. The moneys in the gyrations, the sequential swings up and down (or vice versa) from open to close. Applying a reliable methodology the amateur trader can begin the process of taking as many points as he or she can from each swing.
The chief considerations for taking good points from each swing are (1) the type of charts (time, range and/or volume bars) you use and (2) accurate use of any indicators you deploy to help you.
I agree, the edge thing is always advised to people but you may as well say "search for the holy grail".
I worked on a market making desk on a relatively illiquid contract, nobody knew how to price the product efficiently and because of that we could buy the market 5 ticks below the bid through hedging it with other derivatives. THAT is an edge. Every time I put a trade on I was at least 5 ticks in the money instantly. Of course that loop hole closed very quickly as soon as a couple of other traders figured it out. But thats how banks trade. They do not look at the dow and guess whether its going up or down.
Having said that though market experience is an edge. I have know many traders earning 20k+ a month just trading futures, they have no system (have never seen a system that doesnt need re building after a year or so as market dynamics change) they just learn to get into the ebb and flow of the market.
Put it this way, if you flipped a coin to decide if you went long or short had a 10 tick stop and a 10 tick target you would win 50% of the time lose 50% of the time. BUT, you have to remember slippage and costs, so in reality you would be a net loser.
But flipping a coin is random. If after watching the markets you cant do better than random you are in the wrong business. Assume costs and slippage cost you 20%. If your market experience can add 30% accurancy to your trades beyond random you are net positive 10% expectancy. Over the long run you only need to have a positive expectancy of 0.0001% provided you do enough trades. Thats how I view trading anyway.
I worked on a market making desk on a relatively illiquid contract, nobody knew how to price the product efficiently and because of that we could buy the market 5 ticks below the bid through hedging it with other derivatives. THAT is an edge. Every time I put a trade on I was at least 5 ticks in the money instantly. Of course that loop hole closed very quickly as soon as a couple of other traders figured it out. But thats how banks trade. They do not look at the dow and guess whether its going up or down.
Having said that though market experience is an edge. I have know many traders earning 20k+ a month just trading futures, they have no system (have never seen a system that doesnt need re building after a year or so as market dynamics change) they just learn to get into the ebb and flow of the market.
Put it this way, if you flipped a coin to decide if you went long or short had a 10 tick stop and a 10 tick target you would win 50% of the time lose 50% of the time. BUT, you have to remember slippage and costs, so in reality you would be a net loser.
But flipping a coin is random. If after watching the markets you cant do better than random you are in the wrong business. Assume costs and slippage cost you 20%. If your market experience can add 30% accurancy to your trades beyond random you are net positive 10% expectancy. Over the long run you only need to have a positive expectancy of 0.0001% provided you do enough trades. Thats how I view trading anyway.
very good post
Spot on, good post.
Alot of losing traders don't realise that they are in actual fact doing worse than random. Their attempts at "trading" are actually causing them to have a negative expectancy.
what about traders with too much discipline? Some reach the point where any big drawdowns are too painful so they won't accept anything less than a smooth equity curve. They sacrifice lots of upside in exchange for smaller, harder-won returns. They spend 80% of the time in cash. For instance take a visit to the guy at Alchemy of Trading. He seems like a knowledgeable trader who is so paranoid and protective of his capital that he's usually in a large cash position. This becomes a trap particularly when trading is your only source of revenue.
An edge is where you have a definite or highly probably advantage over others. Like front-running, or trading on insider information... both illegal.
Some of the big boys may in fact have an edge, but we retail traders who like to think we have an edge are delusional.
Years ago there actually was an edge in trading mutual funds. The foreign markets are closed while the US is open. So if the US market made a significant move up or down during the day, a trader could buy or sell an international fund before the US close. And as the foreign markets are mostly monkey-see-monkey-do, the foreign markets would usually reflect the prior US move. I used to make that trade myself.... was usually good for 50-100% gain over the year. (I talked to a guy on the phone who claimed that was the only investment play he made for 9 years.)
Eventually the SEC got wise and ordered the international funds to have their NAV "estimated as though they had been trading while the US was open" rather than their actual NAV... and that was the end of that.
No. Definition problem?
An edge is a statistical advantage over the pure random 50% game where basically your random wins are offset over your random losses and your fees and slippage is the total loss.
There is nothing involved about a techncial advantage etc. - if you want to define that, any seerious retail trader already has an edge over the masses by trading full time, not "when he has time".
A prooven edge is one where I can calculate an average win per trade (over 0), so at the end and after costs I am going to statistically make money.
MANY retail traders do not have that, so "being disciplined" they have no busines being in the market as they are gambling - their "win expecancy" is below 0, so statistically they loose money on every trade.
Such edges can be defined, measured and controlled, but that requires a lot of discipline. Many retail traders et desperate, start taking big risks in hope of big payouts etc. - although the math says they best should put the money in a safe account.
agreed