The 'Edge'

[wisestguy]

re-read man , re-read .

I can't see where I misunderstood you, except where you and Db said it's no good having an edge in just some aspects, you need it in all aspects.

I asked "is it just that?" because the thread just seems to be "what's an edge?" "something that gives you superior performance". Maybe I'm looking for more than is there.

re-read

 

[nine]

Actually wisestguy, a little of your offered wisdom in the last post is suspect (sorry 2nd to last, you posted while i composed ).

"a high % of W's system could still produce a long list of losers FIRST this does not depend on what kind of system one uses , that's just the market being a b#$tch."

In theory any system can produce a long string of losers FIRST but a given length string (say 10) is MUCH more likely with a low win percentage system than a high win percentage system. This is because, per 10,000 trades, a LWP system will have a lot more strings of 10 sequential losses than a HWP system.

Also, if a HWP system has an unusually large number of losses you are getting a clue from that sweet woman, the market, that the system, execution or exploited market behaviour is out of line. With a LWP system it takes a lot more trades to get this clue.

I offer this based on the experiences of someone who has traded both kinds of system both well and poorly but has learnt a few things along the way.


Also, back on money management. Its not "essential" to a good trader at least sophisticated MM isn't unless he or she aspires to take all of the markets money (I use the Van Tharp style definition of MM not the trade management style common with "discretionary" traders). Simple MM like "never bet more than 1% on any trade" may be more than enough for many good traders.

I'm not saying that MM and its understanding are not useful but I have found that an obsession with it is common amongst system traders with lower win ratios. Traders who have higher win rates, more frequent trades, and more discretion seem to gravitate to simple MM.

 

[dbphoenix]

- ain't no theory . I have made 5-10x my base cap. using the big winners small losers edge.

- any systems that does not produce winners almost straight off ( assuming decent risk control ) is a pile of you know what . part of a good system is that it will put you in only on high probability win situations.

a high % of W's system could still produce a long list of losers FIRST . this does not depend on what kind of system one uses , that's just the market being a b#$tch.

- real world or not a lot of people subscribe to the fallacy I described. have you ?

You seem to be agreeing with everything that I said, and I in turn agreed with you. So, no, I don't subscribe to it.

 

[wisestguy]

No , no , no , still wrong.

you people don't know how a high net return system works.

MM kicks in once you take a few losers , your system then reguides you to the next best time to re - enter the market , which may entail taking a break and a long break sometimes.

that's the whole point . you concentrate on the big mothers and forget the small fry . with discipline and MM you ride out the bad patches until the next purple patches comes along - that is of course assuming your system is good emough to spot these spots.

it is not suitable for people who like to trade like a madman all day .

your comments on MM ; don't quite understand all of it , but MM is most definitely essential , and can be more advanced and beneficial than just how much to bet , that begginers sheet . I have already shown you that it can include other things like enforcing a break. in my MM , there much more to it.

and yes, i try to really kill the wins I get , like I usually get at least around 70% of the move .

read mike steinhardt and what he says about this .

 

[sp1]

I look for senarios where the many will be wrong and loose money as a result of thier not being able to see the woob for the trees aor them believeing the authorities through the medai. Weather its "the treasury has been better at forcasting GDP than indipendants bodies" or "Peak Oil, & runaway global demand commodities demand".

Trying to learn from episodes where masses lost money previously i am now trying to find the contraian senarios where the masses can't accept my dispassionate assesments on a developing senario because they belive what they are fed and they cant beleive that every one could loose and be wrong together.

 

[timsk]

Bo Yoder on Edges

In an article in the September edition of Traders' magazine entitled 'Pyg-Trader', Bo Yoder helps a struggling trader to develop an edge. The definition, purpose and importance of an edge has been covered in this thread, but I think Bo Yoder's comments on the elements that comprise a winning edge are worth recording here. He writes:
"I wanted to prove to him [his student] that the power of market edge is not contained within a particular set of indicators, [the student was an indicator junky], but is rather a function of pattern recognition, probability and money management".
Tim.

 

[new_trader]

If you think this is a thread about the U2 band member, then I'm afraid you're in completely the wrong place. :cheesy:

An off the cuff remark by Roberto on the 'Why do we do This'? thread got me thinking. He said: "You need a genuine edge and the intellect to apply it; that's all". This is something that I suspect most traders would agree with and, if they questioned it at all, it would be the bit about the need for intellect rather than a need for an edge. I certainly hope so, anyway! Unquestionably, everyone talks about the need for an 'edge'.

The purpose of this thread then is threefold:
1. Can we agree on a definition of what an 'edge' means - what does an edge constitute?
2. How does the trader without an edge find one, create one or do whatever is necessary to get one?
3. Having defined what an 'edge' means to you and having decided what your edge is, what role or prominence should the 'edge' be given within a balanced and well crafted trading plan?

'I Still Haven't Found What I'm Looking For . . . '
Tim.

1) An edge is whatever makes you different from the 97% of traders that fail.
2) I'm in the process of finding out
3) I think following a well crafted trading plan is the edge. It's role is absolute.

 

[Baruch]

Here you can get the "the edge":

http://www.stressfreetrading.com/darvas.htm

 

[Paddington]

excellent thread

Hi. I'm new here, and would like to add a small something. Without a consistent edge there can be no consistent profits. Seperate to the edge but vital as well is money management (% of equity risked, stop loss entry and adherence).

The edge to me is purely something that gives a higher probability of wins than losses over a series of trades.

A trading plan encompasses how to enter around the edge, money management strategy and how to take profit, and is therefore a synthesis of the two with an overall strategy/ structure.

I think maybe interesting would be people's views on what probability level conbstitutes an acceptable edge, as I suspect that this varies significantly by trading style.

No answers of 100% permitted ;-)

 

[JEDI]

Yes I would like to agree with Paddington an edge is simply a higher probability of one thing happening over another it is that simple and this intellectual discussion of what amounts to an edge is part of the problem.
I trade with the trend so I have an edge if the market is up I buy and vice versa! why ? because there is a better chance it will continue up.

 

[timsk]

The edge to me is purely something that gives a higher probability of wins than losses over a series of trades.

I think maybe interesting would be people's views on what probability level constitutes an acceptable edge, as I suspect that this varies significantly by trading style.

Hi Paddington,
Welcome to T2W.
I don't agree with the first part of the comment quoted in that someone with a 40% success ratio may have an 'edge' and be profitable, whereas someone with a 60% success ratio may not have one and be unprofitable. This is determined by the average profit on profitable trades, relative to the average loss on unprofitable trades - sometimes referred to as a 'Sharpe' rato. Some of the most dazzlingly successful traders in the world only have a 40% probability of success on any given trade but, clearly they have a razor sharp 'edge'. The second part of your comment quoted is, therefore, not really relevant to developing an edge. However, it is a very worthwhile question to ask, because lots of traders (me included) would not be at all comfortable trading a strategy with only a 40% probability of success. My guess is that most traders want a minimum success ratio of 50% or better. This may explain in part why fortunes can be made with strategies that only have a 40% success rate or lower. There are proportionally fewer traders around who are willing and able to trade those strategies.
Tim.

 

[dbphoenix]

Hi. I'm new here, and would like to add a small something. Without a consistent edge there can be no consistent profits. Seperate to the edge but vital as well is money management (% of equity risked, stop loss entry and adherence).

The edge to me is purely something that gives a higher probability of wins than losses over a series of trades.

A trading plan encompasses how to enter around the edge, money management strategy and how to take profit, and is therefore a synthesis of the two with an overall strategy/ structure.

I think maybe interesting would be people's views on what probability level conbstitutes an acceptable edge, as I suspect that this varies significantly by trading style.

No answers of 100% permitted ;-)

"Win/loss" combines two separate considerations into one, and failing to keep them separate can create problems. One is win:lose. The other is profit:loss. Between the two, the "lose" and the "loss" have two distinct meanings. Win:lose refers to the ratio of winning trades to losing trades. Profit:loss means, expectedly, the ratio of profit to loss.

If your profit:loss ratio is low, you need a high win:lose ratio. The higher your profit:loss ratio, the lower your win:lose ratio can be. Then there are commissions and assorted trading costs to take into account, which is why traders who actually trade find that, without size, all the postulations about percentage don't mean much in practice.

In a nutshell, then, "edge" refers to "the knowledge proved through research that a particular price pattern or market behavior offers an acceptable level of predictability and risk to reward to provide a consistently profitable outcome over time".

Db

 

[firewalker99]

Your edge is a consistently profitable trading strategy. And there are a near-infinite number of consistently profitable trading strategies. All you have to do is find the right one for you. But you can't do that until you decide exactly why you're trading and what it is you want from the market. Without that, you'll just drift from Fib to Ross Hooks to CANSLIM to discounted cash flow.

I believe it's more logical to assume there are a near infinite number of strategies which lead to profit. This is my deduction: suppose there are none, then nobody would be making any money and as we know some people do make profits, there has to be at least one profitable trading strategy.

Suppose there's one and only one. Then everybody who makes a profit would be using this strategy. As more people started using it, word spread around, everybody would be using the same strategy or same principles by buying or selling at the same point. As a result of this, the strategy would prove unprofitable after a while because all the market players would be thinking in the same direction. But as a trade can only happen when there's a buyer for each seller, this is not the case.

So there has to be more than one consistent profitable strategy. I think it's fair to assume that more than one indicates "a lot". If there were let's say three, five or ten strategies at most then people would have find out all of them after studying the markets for so long. Qed: there must be a (near) infinite number of ways to draw money from the market.

Which makes me wonder why I'm not succeeding at all... :|

 

[dbphoenix]

Which makes me wonder why I'm not succeeding at all... :|

As I've suggested more than once, either (a) you don't have a consistently profitable strategy or (b) you have a consistently profitable strategy but you're not trading it. It's really that simple.

Db

 

[firewalker99]

As I've suggested more than once, either (a) you don't have a consistently profitable strategy or (b) you have a consistently profitable strategy but you're not trading it. It's really that simple.
Db

I don't have a consistently profitable strategy. I meant that I'm not able to develop one that works for me. Problem b) would be easier to remedy than a).

 

[dbphoenix]

I don't have a consistently profitable strategy. I meant that I'm not able to develop one that works for me. Problem b) would be easier to remedy than a).

Based on what I've read of your work, which may not be representative of all you've done, you have focused on trying to make strategies that allegedly work for somebody else, e.g., VSA, work for you. While I don't want to suggest that this focus never works out, I do suggest that nothing engenders confidence like a strategy that you've developed yourself. You know it from the ground up, inside out, backwards and forwards. And when something works loose, you know how to fix it.

On the other hand, if you mean literally that you're not able to develop a strategy that works for you, you've been at it for two days.

If you're frustrated by all the deadends you've experienced, you're not alone. If you feel you've been misled and lied to, you're not alone in that, either. If you're sick of it all and whatever pleasure you once had in it is long gone, then quit for a while.

Perhaps it will help to think of what you've done so far as tuition. Everybody pays it in some way, eventually. But you can't win if you don't play.

Db

 

[firewalker99]

Based on what I've read of your work, which may not be representative of all you've done, you have focused on trying to make strategies that allegedly work for somebody else, e.g., VSA, work for you. While I don't want to suggest that this focus never works out, I do suggest that nothing engenders confidence like a strategy that you've developed yourself. You know it from the ground up, inside out, backwards and forwards. And when something works loose, you know how to fix it.

On the other hand, if you mean literally that you're not able to develop a strategy that works for you, you've been at it for two days.

If you're frustrated by all the deadends you've experienced, you're not alone. If you feel you've been misled and lied to, you're not alone in that, either. If you're sick of it all and whatever pleasure you once had in it is long gone, then quit for a while.

Perhaps it will help to think of what you've done so far as tuition. Everybody pays it in some way, eventually. But you can't win if you don't play.

Db

Your argument holds some truth, although it depends on your point of view. One could also say that a strategy based on something that works for other people, gives you more confidence as it has already been developed and thoroughly tested and approved by others whilst one that you "invented" yourself from scratch has no other foundation. But I don't want to get in a discussion about this.

Yes I've only been at this "new" journal for a couple of days, but I've been through the process already in the last couple of months and have always stumbled upon the same: everything I've tried has no more chance of success than throwing up a dime and calling heads or tales. But in the market there's a less than 50% chance if I'm working towards a risk:reward of let's say 1:2.

Yes, I'm frustrated, disillusioned and inclined to think there's no way to make a profit. But my rationale says I can't give up. If others can make money, there's no reason to assume you cannot. I disagree with people who say "perhaps trading is not for you", because that would suggest I don't have the discipline or I'm not willing to do the work, which is not the case.

Finally, I'm not "sick of it" and don't want to quit, but I must admit to myself I can't keep running in circles forever...

 

[ymonly]

firewalker,

db put it as honestly as you will ever read it in the last post.....i won't pretend to be a good trader......but i will tell you that i see you going thru what most go thru.........if you are ready to bail after just beginning the process, maybe this facet of trading is better left to others, most of who will fail at it also.......but if you decide to continue this effort, don't expect quick results........someone with db's experience who obviously is freely offering his ideas which are based on trials such as u currently experience, then wise up and use what he has paid for with time, hard work, etc.......if you are in a big hurry, this is not the business to pursue.......emini daytrading .......

 

[firewalker99]

firewalker,

db put it as honestly as you will ever read it in the last post.....i won't pretend to be a good trader......but i will tell you that i see you going thru what most go thru.........if you are ready to bail after just beginning the process, maybe this facet of trading is better left to others, most of who will fail at it also.......but if you decide to continue this effort, don't expect quick results........someone with db's experience who obviously is freely offering his ideas which are based on trials such as u currently experience, then wise up and use what he has paid for with time, hard work, etc.......if you are in a big hurry, this is not the business to pursue.......emini daytrading .......

I'm not in a big hurry, but you must realize that I've already spent hundreds of hours reading, studying, analyzing charts, etc... which all seem to have brought me nothing. Not talking about the thousand of euros wasted. Of course it was stupid to start with real money in the first place, but no use in crying about spilt milk. I'm now focusing on learning how to trade instead of winning money back.

 

[ymonly]

hundreds of hours just scratched the surface....you have probably seen several good approaches but the good stuff was in the big pile with much worthless stuff...when you spend the time, sweat, and more time, you should begin to see the pieces worth keeping......building slowly, but surely....the simplest and basic one should be the demand supply lines db discusses.....hand drawn is good.....demo trade realtime if possible.......