What defines an "Edge".
- Thread starter redbaron1981
- Start date
It seems that a good way to get a lot of responses is to ask for just a few.
Rallymode gave a great answer to a (sorry op) rather uninteresting question. He understands the game. I know because a) I've met him and b) I understand the game. People who understand the game see the trading world in a similar light - thus there's no need to argue because there's very little to disagree about. People who spend enormous amounts of time posting and arguing on trading forums do not understand the game. That should be self evident. They have an addiction that is sucking away a large portion of their time.
When you are starting out manual trading there are two things to do. 1) Understand a product or a product complex well enough to be able to routinely, several times a day pick up free convexity. This is the grind. 2). After you are very familiar with a product there will be rare occasions where it is mispriced. This is fundamentally different. With convexity you are playing the odds where you stand to gain more than you lose. This is an inefficiency in price movement. Mispricing isn't odds. It's absolute certainty that the price is incorrect. There were days where I've made 100k in a few seconds by spotting a mispricing. They are more rare now but still exist.
The following is my general opinion:
1) charts are a waste of time
2) trading plan is... - I have no idea. Shouldn't it just be 'make money'
3) mathematical intuition is essential
4) mentors and courses and trading books are a waste of time. There's plenty to see by just looking at data.
5) trading psychology = be calm when losing money. That's it.
6) I have no idea what "money management" is. Sounds like something out of a book. I do know what "risk management" is. But it applies more to funds than to trading shops.
7) PhDs are smart but are often not practical. If you spend time reading their research on market microstructure you'd see what I mean. Plus, they spent years of their life getting a PhD. That's rarely a great decision.
8) there are plenty of people who have taken 20k to mid 8 figures. I know lots of them.
9) always assume that on whatever product you are trading that someone else is trading it for free.
10) prop shops are a waste of time. And probably dangerous. I mean places where you contribute capital.
11) if you've spent more than 6 months trying to trade and haven't made significant progress then you should do something else. 6 months is more than enough time to see what's there. If you can't spot convexity by then you most likely never will.
12) Altruism exists. Really successful people are frequently altruistic. But there are rules. If you want something just offer something in return. Not money. Dinner, chocolate, cookies, whatever. Show you are not just a taker
13) If you've gotten $5m in capital from your friends please don't call yourself a hedge fund. It's hard to even start attracting money with less than $100m in capital. $100m could be a small hedge fund. Very small. The fund I was at opened its doors with $6 billion. That was kind of medium sized. You're not getting an isda with $5m so you are not a hedge fund. This is mostly a semantic annoyance with news articles about teenagers and their $500k hedge funds.
I'm sorry to sound pedantic. I classify all this as common sense and it's frustrating to me that this stuff gets so much traction on this board.
Rallymode gave a great answer to a (sorry op) rather uninteresting question. He understands the game. I know because a) I've met him and b) I understand the game. People who understand the game see the trading world in a similar light - thus there's no need to argue because there's very little to disagree about. People who spend enormous amounts of time posting and arguing on trading forums do not understand the game. That should be self evident. They have an addiction that is sucking away a large portion of their time.
When you are starting out manual trading there are two things to do. 1) Understand a product or a product complex well enough to be able to routinely, several times a day pick up free convexity. This is the grind. 2). After you are very familiar with a product there will be rare occasions where it is mispriced. This is fundamentally different. With convexity you are playing the odds where you stand to gain more than you lose. This is an inefficiency in price movement. Mispricing isn't odds. It's absolute certainty that the price is incorrect. There were days where I've made 100k in a few seconds by spotting a mispricing. They are more rare now but still exist.
The following is my general opinion:
1) charts are a waste of time
2) trading plan is... - I have no idea. Shouldn't it just be 'make money'
3) mathematical intuition is essential
4) mentors and courses and trading books are a waste of time. There's plenty to see by just looking at data.
5) trading psychology = be calm when losing money. That's it.
6) I have no idea what "money management" is. Sounds like something out of a book. I do know what "risk management" is. But it applies more to funds than to trading shops.
7) PhDs are smart but are often not practical. If you spend time reading their research on market microstructure you'd see what I mean. Plus, they spent years of their life getting a PhD. That's rarely a great decision.
8) there are plenty of people who have taken 20k to mid 8 figures. I know lots of them.
9) always assume that on whatever product you are trading that someone else is trading it for free.
10) prop shops are a waste of time. And probably dangerous. I mean places where you contribute capital.
11) if you've spent more than 6 months trying to trade and haven't made significant progress then you should do something else. 6 months is more than enough time to see what's there. If you can't spot convexity by then you most likely never will.
12) Altruism exists. Really successful people are frequently altruistic. But there are rules. If you want something just offer something in return. Not money. Dinner, chocolate, cookies, whatever. Show you are not just a taker
13) If you've gotten $5m in capital from your friends please don't call yourself a hedge fund. It's hard to even start attracting money with less than $100m in capital. $100m could be a small hedge fund. Very small. The fund I was at opened its doors with $6 billion. That was kind of medium sized. You're not getting an isda with $5m so you are not a hedge fund. This is mostly a semantic annoyance with news articles about teenagers and their $500k hedge funds.
I'm sorry to sound pedantic. I classify all this as common sense and it's frustrating to me that this stuff gets so much traction on this board.
Last edited:
There's no 'one' answer. There is no one-size-fits-all solution in trading. The market is like an ecosystem. Many edges happen concurrently. Simultaneously. Pick one you like best. It requires no fancy math, or statistical background. Although, traders have found edges there. Just because they have, doesn't mean math and statistics is the only place to find an edge..
I trend follow, using a visual chart. I don't know how long the trend will last, or where exactly to enter on a retracement. It's more educated guesswork then science. It's coming to terms with risk, and the necessity of risk-taking. And those risks have to be small fraction of a fraction to preserve seed capital. That is what TRADING is.
I trend follow, using a visual chart. I don't know how long the trend will last, or where exactly to enter on a retracement. It's more educated guesswork then science. It's coming to terms with risk, and the necessity of risk-taking. And those risks have to be small fraction of a fraction to preserve seed capital. That is what TRADING is.
To: redbaron-Buy1Sell2-marketsurfer-fortydraws-and you too Handle…
I’m paying for the next round of drinks at the Punta Cana B
each bar and these Girls will be waiting for you to take “the edge off” your Trading!!!!!!
Killer posts…Killer topic…“Exploitable patterns of Behavior”…“Striving for perfection in the Execution”… “Discipline- Discipline- Discipline”… ALL hit home HARD!
I think about this topic often…especially what “fortydraws” writes in relation to Casino games BJ & poker. Its so rare that when I make a trade… it “feels” the same as picking up a an 11 with Dealer 6 or counting the Decks down knowing full well a bunch of 10’s are coming to really up the bet…or Picking up Aces pre-flop in the end seat.
Maybe I’m wrong and/or “fortydraws” can correct me…but these games have a “definable edge” whereas in trading you can only look back at your results then draw “subjective conclusions” because it seems like the trading has “unlimited” possibilities and the Edge can’t really be defined.
I KNOW the Edge in BJ 2-4% ( even more if you could “Wong it” without getting tossed) and in the Poker Pre-flop with the Kill hands 75+%…but in Trading, What is that edge #???????
Greetings…from Behind the Iron Curtain
I’m paying for the next round of drinks at the Punta Cana B
Killer posts…Killer topic…“Exploitable patterns of Behavior”…“Striving for perfection in the Execution”… “Discipline- Discipline- Discipline”… ALL hit home HARD!
I think about this topic often…especially what “fortydraws” writes in relation to Casino games BJ & poker. Its so rare that when I make a trade… it “feels” the same as picking up a an 11 with Dealer 6 or counting the Decks down knowing full well a bunch of 10’s are coming to really up the bet…or Picking up Aces pre-flop in the end seat.
Maybe I’m wrong and/or “fortydraws” can correct me…but these games have a “definable edge” whereas in trading you can only look back at your results then draw “subjective conclusions” because it seems like the trading has “unlimited” possibilities and the Edge can’t really be defined.
I KNOW the Edge in BJ 2-4% ( even more if you could “Wong it” without getting tossed) and in the Poker Pre-flop with the Kill hands 75+%…but in Trading, What is that edge #???????
Greetings…from Behind the Iron Curtain
I'm in no position to correct anyone. But Thorp did note that what many seem to interpret as a definite or "fixed" edge in games of chance is really not fixed, but rather consists of a "spectrum of favorable expectations" similar to what most would say they experience in trading.
The one"correction" I may suggest is that if you have a trading system where your entry, exit, and stop loss is defined, as well as the conditions under which you will initiate a trade (place a bet) then over the long run, your statistics are not subjective. A win rate is a win rate, and an average payoff is the average payoff. If you know your probability of win and losing, and if you know what you can expect to win on average when you win and what you expect to lose on average when you lose, you have all you need to calculate whether or not you have an advantage.
An "edge" is neither a mysterious (if not mythical) entity, nor must an "edge" be ephemeral and linked to esoterica that is the province of a few. In fact, an edge is a mathematically calculable figure. If you have one, then you bet every time your edge appears, limiting your bet size relative to total bankroll so as to avoid the risk of ruin inherent in over betting even a positive expectancy system when caught in the inevitable periods where you will lose even when you should be winning, i.e. when your system is experiencing variance, a sort of probabilistic pulse.
If you keep good trading records, you can easily calculate whether or not your have an edge, and if so, what % advantage you have.
If Lebron James plays some Joe Sixpack in a exhibition promo one on one game does he think to himself - wow that guy has a official NBA Spalding basketball he might be tough to beat and if the guy doesn't he is easy to beat. No bearing whatsoever.
Why do so-called traders think the professional traders concern themselves with what newbies use or don't use.
Completely laughable.
Why do so-called traders think the professional traders concern themselves with what newbies use or don't use.
Completely laughable.
what is free convexity?
Man, are you lost. A pro trader comes to the thread and takes the time to explain how markets really work and you "dislike" because it destroys your myths. I dont agree with him 100% but its clear he speaks from experience. surf