What is an "edge"?

As I've stated in other Edge Threads

The best definition I have heard;

Edge = being able to see something in the market in time to be able to exploit it.
 
Scataphagos said:
My view is that Rentec DOES have an edge... "front running"... which is illegal. But the regulators let them get away with it because (1) they add liquidity to the market, (2) they steal only a little bit on each trade, and (3) they are the right people.

I have no proof and would not accuse without it... just my view.

Years ago I had an edge... legal one... trading mutual funds... until the revenooers discovered how well it worked and put a stop to it.
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Ah, so you are a conspiracy theorist? :)
Personally I don't think there is chance in hell that Rentec would be front-running, or have a need to do so. Some HFT stuff may show up as small part of their trading, but not to the full extent of transactions and $money they're trading. Even from legal point of view their competitors like Citadel would be camping out outside SEC until this is resolved. Citadel and a few MMs can pull and analyze all the data needed to prove and describe every detail of such massive front-running. They wouldn't care about destroying Rentec in a second.

But most importantly, Rentec simply doesn't have any need to do anything illegal because it's quite clear to me what they do. And Two Sigma, Man AHL, and a few others do the same. They have supercomputers constantly discovering, testing and improving trading strategies, similar to those that everyone here on ET is working on and using. So they basically use all the strategies we're using, and then some. And if any of our strategies work then there is no reason to believe that 1000x more of such strategies wouldn't work together, each making small profit that adds to the total.

So what @schizo is describing here as his potential or needed edge, may be just one of thousands of Rentec's edges.
 
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schizo said:
So far, here's what I've manage to come up with:

1) Edge is a pattern. It could simply be a price pattern on the chart, or it could be a behavior pattern (eg. the interaction between me and/or the market).
2) Edge must be repeatable. It can be repeated, replicated, duplicated each and every day.
3) Edge has a high probability of success.
4) Good entry is a must. Good exit is a must.
5) Good entry is useless, however, if your timing is off.
6) There is no good exit. There is only a proper exit (eg. let your winner run, cut your losses).
7) Good entry is critical, but good exit is even more crucial.
8) Good entry is one with good risk:reward ratio.
9) Getting in too early or too late is a high risk trade.
10) Getting out too early or too late is a low reward trade.
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11) Human actions are governed by law (eg. natural law, judicial law, etc.).
12) Laws are devised to preserve self-interests.
13) Hence, human actions are governed by self-interests.
14) Markets are designed to exploit emotions (eg. greed and fear).
15) Prices are pegged to greed and fear.
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schizo said:
So far, here's what I've manage to come up with:

1) Edge is a pattern. It could simply be a price pattern on the chart, or it could be a behavior pattern (eg. the interaction between me and/or the market).
2) Edge must be repeatable. It can be repeated, replicated, duplicated each and every day.
3) Edge has a high probability of success.
4) Good entry is a must. Good exit is a must.
5) Good entry is useless, however, if your timing is off.
6) There is no good exit. There is only a proper exit (eg. let your winner run, cut your losses).
7) Good entry is critical, but good exit is even more crucial.
8) Good entry is one with good risk:reward ratio.
9) Getting in too early or too late is a high risk trade.
10) Getting out too early or too late is a low reward trade.
11) Human actions are governed by law (eg. natural law, judicial law, etc.).
12) Laws are devised to preserve self-interests.
13) Hence, human actions are governed by self-interests.
14) Markets are designed to exploit emotions (eg. greed and fear).
15) Prices are pegged to greed and fear.
.
.
.
More...
Pareto Principle (80/20 Rule):
16.1) The market trends only 20% of the time.
16.2) Only 20% of the market participants will consistently make significant amount of money over time.
16.3) What you thought was a winner will turn out to be a loser 80% of the time.
16.4) 80% of the losses can be offset by 20% of the gains.
16.5) 80% of the profit comes from 20% of knowledge and effort. The other 80% is luck.
16.6) 80% of the worst trading decisions almost always stem from lack of discipline, which can be attributed to innate flaws and errors (eg. personality flaws, judgmental errors, etc).
 
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guru said:
Ah, so you are a conspiracy theorist? :)
Personally I don't think there is chance in hell that Rentec would be front-running, or have a need to do so. Some HFT stuff may show up as small part of their trading, but not to the full extent of transactions and $money they're trading. Even from legal point of view their competitors like Citadel would be camping out outside SEC until this is resolved. Citadel and a few MMs can pull and analyze all the data needed to prove and describe every detail of such massive front-running. They wouldn't care about destroying Rentec in a second.

But most importantly, Rentec simply doesn't have any need to do anything illegal because it's quite clear to me what they do. And Two Sigma, Man AHL, and a few others do the same. They have supercomputers constantly discovering, testing and improving trading strategies, similar to those that everyone here on ET is working on and using. So they basically use all the strategies we're using, and then some. And if any of our strategies work then there is no reason to believe that 1000x more of such strategies wouldn't work together, each making small profit that adds to the total.

So what @schizo is describing here as his potential or needed edge, may be just one of thousands of Rentec's edges.
More...

I could be wrong of course, but with Rentec making thousands of trades per day and winning virtually EVERY day.... and with some HFT players spending $Millions (maybe even a $Billion) to build facilities closer to the exchange to cut down latencies by a "ms or two" trying to "beat other HFTs to the punch"*.... I can't see them spending that kind of money for that kind of edge unless they were "cock-sure" it's worth the expenditure and that they were going to be rewarded. The only cock-sure reason that seems to fit the dynamic is front-running.

* For trying to gain a "ms advantage" over others, the information must be urgent and many/all other players are seeing it at approximately the same time. If the urgency to act is that great, then "the first to the door gets the biggest prize". Seems to me that only front-running could be "ms urgent". Worth $Millions/$Billion? Must be.
 
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deaddog said:
Edge = being able to see something in the market in time to be able to exploit it.
More...

"Front running" fits that definition.... but so does "paying attention, being analytical and disciplined".

Being smarter and more disciplined than the next guy is not "edge" over the markets.
 
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