What is an edge?

[Scataphagos]

Active traders too, more likely than average investor to crash and burn ..

That is actually not true. It's not a matter of "frequency" of trades but rather "quality".

True, a poor trader who is active is more likely to crash and burn faster.

Traders shouldn't have as an objective to trade more or trade less.... but rather to trade better.

 

[Xela]

"Edge" is one of those words which traders use with slightly variable meanings, leading to some confusion and talking at cross purposes, in forum discussions, I think.

To me, an "edge" is more or less a reliable, repeatedly verifiable, statistically significant advantage over the market.

Although each time I enter a trade I don't know whether it will win or lose, my "edge" is what gives me a high degree of statistical confidence in the collective outcomes of my next 300 trades, with only a very small overall variability-percentage, so it's a probability function of which the accuracy is proportional (albeit not linearly) to the sample-size of outcomes over which it's monitored.

Statistics and probability are both counter-intuitive and tricky subjects, but they're necessarily the frame of reference within which I define and describe "edge".

 

[Scataphagos]

"Edge" is one of those words which traders use with slightly variable meanings, leading to some confusion and talking at cross purposes, in forum discussions, I think.

Agree, but it's still not an edge on the market... just on other traders.... who are neither as smart nor a disciplined as you.

Making money in the market is not quite the same as "doing better than other traders".

 

[eves_banished_children]

That is actually not true. It's not a matter of "frequency" of trades but rather "quality".

True, a poor trader who is active is more likely to crash and burn faster.

Traders shouldn't have as an objective to trade more or trade less.... but rather to trade better.

I was talking statistics ... statistically people who trade more actively do worse.

 

[Scataphagos]

I was talking statistics ... statistically people who trade more actively do worse.

"One should strive to be part of the few rather than "the people" -- Master Po

 

[eves_banished_children]

"One should strive to be part of the few rather than "the people" -- Master Po

Well, yeah, but that's back to my point ... everybody THINKS they're the one with the edge.

 

[themickey]

So a trader who performs well profitably, better than most average traders, does that trader have an edge?

 

[Scataphagos]

So a trader who performs well profitably, better than most average traders, does that trader have an edge?

No. The only edges in the maket I know of (stated earlier) are illegal.

An example of true edge....Let's say the payout on a single number in roulette was 40:1, but there are only 38 numbers on the wheel. Payout = 40:1, probability of winning, 38:1. That would be an edge. But of course, roulette has an edge built in for the house.... payout is 35:1, odds of winning = 38:1.

 

[Scataphagos]

Well, yeah, but that's back to my point ... everybody THINKS they're the one with the edge.

While they likely don't have one, if they believe they do and it gives them confidence... that's OK.

I know I don't have an edge and will likely never have one again. No worries.

(One time I did sort-of have an edge. Back when I ran my mutual fund market timing service, I and others used to arb the foreign markets vs. the US markets.... nothing shady or illegal at all. The revenooers eventually recognized the advantage and took it away. One guy I talked to on the phone told me that he'd "done no other trades besides that arb for the last 11 years and had averaged 54% annually". And that's for longs, only. There were no "short" funds nor leveraged funds like there are today.)

 

[themickey]

Hmmmm, interesting, will mull over this concept.