What is an edge?
- Thread starter Dobbes
- Start date
The edge is the expectancy of your trading system or method. Expectancy is what is formally defined as the measure of the edge. Expectancy does not need to remain constant, it is a dynamic variable, but it must remain positive over time. There is too much talk over things that have been settled a long time ago in the trading business. You need a trading method with a positive expectancy to make money and this is your edge. Your average winner is your odds. The ratio (expectancy/avg. winner) is your key to optimal equity growth, provided the expectancy remains positive over time and you have enough funds to cover drawdowns. This is all well-established. For a formal derivation of expectancy and its role in optimal position sizing read this paper:
http://www.tradingpatterns.com/Kelly.pdf
"The expected gain E(g) [expectancy] represents the âedgeâ, which is how much the trading system is expected to win on average, and the average winning trade is the âoddsâ, which is the average amount won each time the trading system is profitable. Therefore, the optimal bet size according to the Kelly formula is equal to edge divided by odds. This is the ratio that is known to maximize geometric equity growth of a profitable trading system or betting strategy."
This means that you have to get to work and develop a trading method with a positive expectancy. All else is just talk. Nobody will tell you how to do that. You must do it yourself.
http://www.tradingpatterns.com/Kelly.pdf
"The expected gain E(g) [expectancy] represents the âedgeâ, which is how much the trading system is expected to win on average, and the average winning trade is the âoddsâ, which is the average amount won each time the trading system is profitable. Therefore, the optimal bet size according to the Kelly formula is equal to edge divided by odds. This is the ratio that is known to maximize geometric equity growth of a profitable trading system or betting strategy."
This means that you have to get to work and develop a trading method with a positive expectancy. All else is just talk. Nobody will tell you how to do that. You must do it yourself.
Fifth grade sex ed class, I raise my hand and ask, "How do you know when you're done?" (Having sex, that is.)
After lots of laughter (I was young for my grade), the teacher replies, "Oh, you'll know."
Same goes for having an edge.
After lots of laughter (I was young for my grade), the teacher replies, "Oh, you'll know."
Same goes for having an edge.
ROFLMAO !!!!!!!
A lot of newbies lately asking about an edge.
ATTENTION, ATTENTION NEWBIES
When you get one you'll know it. Just keep in mind it takes anywhere from 5 to 10 years if your IQ is above 180 to more than 10 years if your IQ is above 140 but less than 180 and maybe 20 years or more if your IQ is above 110 but lees than 140 and NEVER you will get one if your IQ is less than 110.
Wow. The ignorance here is truly unreal. Edge has nothing to do with anything posted. EVERYONE has all those things listed and a computer has no issues with emotional control. God you people are sooooo lost
Hey Arthur
Thanks. One of the best posts I have ever read on ET..
All the Best
John
[
QUOTE]Quote from Arthur Deco:
It is vague because an edge is simultaneously the absence of something and the presence of many things at once. The absences are that:
anything you read in a book is not an edge
anything you read here is not an edge
anything you find in a charting application is not an edge
anything a vendor wants to sell you is not an edge
anything ANYONE shares with you is not an edge.
The multiple presences are even more confusing because all of the presences work some of the time, but none of the presences work all of the time. I give away nothing to tell you what traders who HAVE an edge will confirm. Intraday, a presence is:
a particular time slot
a particularly shaped twitch in price, usually invisible to the uninformed
a particular pattern of trades on the tape
a particular pattern of price in multiple time frames
proximity of price to secret support or resistance levels
particular patterns in the first derivatives of price or volume.
You can test everything you can think of, and nothing works by itself. If you try to test any two things together, you will think you found something, but it was a fluke of the finite sample sequence.
But when you SEE in sequence first one thing, then a second thing, and finally a third thing, AND you have the courage to act irrationally, THEN you have an edge. And that edge is untestable, because it occurs so rarely. As rarely as any other combination of three things occurs out of a universe of thirty of more posible events. So you have to know the ensemble of all the significant events, and have charts that help you see their rare confluences. Personally I think it's too much fucking work, but I have nothing better to do in my declining years than waste my time imagining I see edges and taking the trades. [/QUOTE]
Thanks. One of the best posts I have ever read on ET..
All the Best
John
[
QUOTE]Quote from Arthur Deco:
It is vague because an edge is simultaneously the absence of something and the presence of many things at once. The absences are that:
anything you read in a book is not an edge
anything you read here is not an edge
anything you find in a charting application is not an edge
anything a vendor wants to sell you is not an edge
anything ANYONE shares with you is not an edge.
The multiple presences are even more confusing because all of the presences work some of the time, but none of the presences work all of the time. I give away nothing to tell you what traders who HAVE an edge will confirm. Intraday, a presence is:
a particular time slot
a particularly shaped twitch in price, usually invisible to the uninformed
a particular pattern of trades on the tape
a particular pattern of price in multiple time frames
proximity of price to secret support or resistance levels
particular patterns in the first derivatives of price or volume.
You can test everything you can think of, and nothing works by itself. If you try to test any two things together, you will think you found something, but it was a fluke of the finite sample sequence.
But when you SEE in sequence first one thing, then a second thing, and finally a third thing, AND you have the courage to act irrationally, THEN you have an edge. And that edge is untestable, because it occurs so rarely. As rarely as any other combination of three things occurs out of a universe of thirty of more posible events. So you have to know the ensemble of all the significant events, and have charts that help you see their rare confluences. Personally I think it's too much fucking work, but I have nothing better to do in my declining years than waste my time imagining I see edges and taking the trades. [/QUOTE]
imo, someone's trading edge (a construct) can be a composite of his several edges in various aspects (directional timing and managing risk are two of them).
"
http://en.wikipedia.org/wiki/Construct_(philosophy_of_science)
Construct (philosophy of science)
In philosophy of science, a 'construct' is an ideal object (i.e., one whose existence depends on a subject's mind), as opposed to "real objects" (i.e., those whose existence is non dependent on a subject's mind).[1] Hence, concepts (such as those designated by the sign '3' or the word 'liberty'), hypotheses (such as that designated by the sentence "Evolutionary theory refers to individuals and populations"), theories (e.g., evolutionary theory, gravitational theory), classifications (e.g., biological taxonomy) and other conceptual items are constructs, while biologists, foxes, philosophers, rocks, computers, and pencils, among many other, are not constructs but real objects (or real things)."
"
http://en.wikipedia.org/wiki/Construct_(philosophy_of_science)
Construct (philosophy of science)
In philosophy of science, a 'construct' is an ideal object (i.e., one whose existence depends on a subject's mind), as opposed to "real objects" (i.e., those whose existence is non dependent on a subject's mind).[1] Hence, concepts (such as those designated by the sign '3' or the word 'liberty'), hypotheses (such as that designated by the sentence "Evolutionary theory refers to individuals and populations"), theories (e.g., evolutionary theory, gravitational theory), classifications (e.g., biological taxonomy) and other conceptual items are constructs, while biologists, foxes, philosophers, rocks, computers, and pencils, among many other, are not constructs but real objects (or real things)."
An edge is defined as a greater then 50 percent chance of one thing happening over another.what 90 percent of traders don't understand and will never understand is that trading is a confluence of mind, (discipline) method, (trading plan) and money management (risk control). If you don't poses all three you have no edge. hence no chance in this game.
"My" definition of an EDGE is a SET OF RULES to TAKE A MARKET POSITION that has held up with a POSITIVE EXPECTANCY in, in-sample backtesting, out-of-sample backtesting, and near-term forward testing (i.e., simulated forward testing and live trading), while, all-the-while, keeping in mind that the EDGE may DISAPPEAR in the future due to the EVER-CHANGING nature of the markets.
FWIW
Some folks see things that are or have occurred and ask, why?..... I see things that have not yet occurred and ask, why not?
(Note: This is a Bernard Shaw quote⦠I modified awhile back to describe what my edge does for me)
I admit it may sound ambiguous to some â but I know exactly what it means
Respectfully
RN
Some folks see things that are or have occurred and ask, why?..... I see things that have not yet occurred and ask, why not?
(Note: This is a Bernard Shaw quote⦠I modified awhile back to describe what my edge does for me)
I admit it may sound ambiguous to some â but I know exactly what it means
Respectfully
RN