The Secret Edge

[LiamH]

It's your call whether you want to ignore the 5 years of backtest data covering more than one market condition. Or the 5 months of paper trading. Or the 1 month of pre-production (small money trading) have any statistical significance. I think I could make a good argument otherwise.
.

How many trades were executed in the testing phase? And, what timframe do you use to place the trades?

 

[Ambrose Ackroyd]

You can buy the book at Amazon if you are that way inclined.

http://www.robinreardon.com/books/secretedge.php


I do have a secret hedge though. The neighbours can't see it cos it has a bloody great brick wall in front of it.

 

[HowardCohodas]

How many trades were executed in the testing phase? And, what timframe do you use to place the trades?

That's a fair question.

I did not keep statistics in exactly the way you asked the question. And I don't have quick access to the computer that contains my research report.

This should give you an idea of what happens. And we can come up with some estimates of the statistics your requested.

In my strategy, a credit spread lives for at most 59 days. They are placed on the Monday following the expiration of the previous series. It is rare that at least one side (PUT, CALL) will not meet the risk/reward requirements. This can happen in very volatile markets. In trending markets only one side is likely to be placed at the T-59 day. However, once one side is placed, one can be a little more liberal about placing the other side because no additional margin is required. It is rare that the second side cannot be placed within a week or so.

In a sideways market, this spread or combination of spreads called an Iron Condor dies piecefully at it's expiration day and I keep the credit I received when I entered the trade. If the market moves close to one side or the other, I will close that spread early to avoid market gap risk.

In a trending market, the spread on the far side can be rolled. I've done up to three rolls during live trading under these circumstances.

Lastly, I tested only using options on the RUT. When I got the idea to teach, I added NDX and SPX to my live trading so that my students could relate to whatever size trading account they had. So the 29 spreads in a little over 3 months is an unusually high number of trades if you stick to only one index. Also, I did not do weeklies or quarterlies during the backtesting and paper trading phases. So again, 29 in 3 months is an unusually high rate. However, so much the better for my statistical case.

OK, now with that background, we are talking about 65 months of trading. In a sideways market where both sides can be placed without difficulty, you would expect to place two trades per month and have modest management requirements. Since trending typically happens 20% of the time.

Bottom line, I estimate that I've done a combined 190 to 200 credit spreads when I include the past 3 months live trading.

I have added one key rule that I use in real trading that I did not use in testing. In the near future (3 months or so) I intend rerunning my tests to incorporate this new rule and include all three indexes and the weeklies and quarterlies where available. That should at least triple the number of spreads tracked.

I hope that answers you questions. I'm sure you wont hesitate to ask for additional information where needed.

 

[wackypete2]

I could tell you my secret edge, but then I'd have to kill you.

Peter

 

[HowardCohodas]

I could tell you my secret edge, but then I'd have to kill you.

Peter

I've told everyone what my secret edge is and some have tried to kill me.

Go figure.

 

[wackypete2]

meanwhile...eurusd on a nice steady 2 1/2 hour climb. Im waiting for it to fall off the edge.

Peter

 

[Prawnsandwich]

I put you down for option 3 then

Missing the point as usual and / or just making it up......

Actually dont bovver putting me down for any of the options...you don't have the most obvious option as set out by bbmac......

By the way ....have you selected an option....have you mastered swing / position trading, fundamental investment, day trading and futures in less than a year ?

 

[meanreversion]

Howard my old fruit.. very clearly you suffer from verbal diarrhoea. Perhaps you should seek help at the Mayo clinic for this affliction.

(Apologies for the "ad hominem" attack, but I really fail to see how anyone can take you and your endless gibberish seriously)

 

[HowardCohodas]

Howard my old fruit.. very clearly you suffer from verbal diarrhoea. Perhaps you should seek help at the Mayo clinic for this affliction.

(Apologies for the "ad hominem" attack, but I really fail to see how anyone can take you and your endless gibberish seriously)

I have been told that when asked the time, I'm inclined to start with the history of watch making.

And so it goes.

 

[meanreversion]

I have been told that when asked the time, I'm inclined to start with the history of watch making.

And so it goes.

Please stop actively trying to be a nimrod.

 

[HowardCohodas]

Please stop actively trying to be a nimrod.

I had to look up nimrod. Had to go deep before finding non-Biblical references.

On the other hand, I didn't have to look up the word in the following sentence. Better than being a troglodyte.

I hope you are enormously successful in trading to have the time to tell others how to act, how to speak and how to write. Otherwise this is a poor investment in your time considering your effectiveness.

BTW, I used to teach a Presentation Skills Workshop to engineers at the Fortune 500 company where I worked. It was popular. How is it going with your effort at instructing others?

 

[MrGecko]

This thread is a bunch of bullsh!t.

Look - if you want to know how big your edge is, and to what degree of confidence you can ascribe to it, buy an A level stats book and work it out.

People say "you need 2 yrs" but the reality is that this is a totally spurious number. Most of the comments have basically endorsed what is "common T2W knowledge" (like you should demo trade before real trade, or that money management is key, or that you shouldn't trade around the news), which are basically regurgitated views inherited from T2W'ers of old.

I mean... let's stick with the 2 yr figure - that means that if one has been day-trading 18 months and consistently lost money, one should carry on because 18 months isn't long enough to demonstrate you don't have an "edge"? T2W "common knowledge" balks at such a claim, yet it is entirely consistent with the former.

I mean, it's ********. Decide what an edge means to you, and test your PnL against that. The proof of the pudding is in the eating, not what is proclaimed as an axiom of trading by chumps on the internet.

My first post in this thread contains a legitimate edge, yet it doesn't seem to appear on the radar of the T2W proletariat as they are still high on the opiate of MetaTrader 4.

Rant over.

 

[bedsit]

Mathematical ?

What does mathematics have to do with being a succesful trader ?

:?:

 

[squall321]

you could be consistently profitable on ftse for 20 years
with a 5000 pt spanish stoploss

 

[DionysusToast]

In terms of how edges fade, the following explanation is best.

If it became common knowledge that the ES rose 4% every friday, there would be a lot of buying on a Friday morning. There would also be a lot of slippage as people competed to take advantage of these rises.
Over time, people would see that they weren't getting filled in the AM and so would buy at the end of Thursay and risk an overnight trade to take advantage of Fridays rise. Over time, Thursday would be trickier as more people tried to get positioned then, so Wednesday would be ideal....
At the time of exit, there would also be competition to exit and so people would exit earlier & earlier. Sure - it's nice for people to all jump on the same trade UNTIL they all try to exit at the same time !

In terms of secret edges, my opinion on this topic is that it is very unlikely that anyone here has a secret edge at all.

Generally, when people think of secret edges, they are also thinking of mechanical non-discretionary methods too.

If you think there's a secret, mechanical edge to find, the danger is you will keep looking and looking and never find one. Your trading 'career' will be that of a seeker. That of constant change. That of playing with numbers and formulae. You will become knowledgable in many things but will be expert in none. Most of all, you will do very little live trading.

My view is that day trading is much more like a sport than an intellectual endeavour. You may have tactics (which may be mechanical) and you may have your own way of doing things but fundamentally you are playing the same game as many others. If you look on the internet to see how people are playing the game, you will be met with 99.9% misinformation. Only by communicating with genuine real full-time traders will you really have any idea how the game is played. There are very few such people on internet forums.

You have to pull the trigger and the less confirmation you can accept in order to pull the trigger, the better you will be. Just like a sport, the more you practice/train, the better you will become at this. Just like a sport, you just might not have what it takes to be number 1. Just like a sport, you will need to monitor your own progress and track results so you can improve.

I think people spend too much time looking for an elusive edge when they would be better served getting advice from a succesful trader and then attempting to focus on the methods taught for a long evaluation period. The evaluation is needed as these techniques may be things you just can't adapt to.

 

[Shanghai]

With computing power as it is, I don't believe that any significant edge can be found using a purely mechanical system or a purely fundamental based system. If there was a combination of MA crossovers or MACD lines etc that gave consistent results then it would soon be discovered and lose its edge as DT mentions above. Its the same for PE ratios etc. for fundamental systems.

Instead I believe that succesful traders gain their edge from discretionary decisions such as when to employ which system under which market conditions and when to step aside. Also the proper use of price action and volume can help gain an edge I believe and these are harder to programme.

 

[HowardCohodas]

With computing power as it is, I don't believe that any significant edge can be found using a purely mechanical system or a purely fundamental based system. If there was a combination of MA crossovers or MACD lines etc that gave consistent results then it would soon be discovered and lose its edge as DT mentions above. Its the same for PE ratios etc. for fundamental systems.

Even before significant computing power existed, it seems any market inefficiency was quickly arbitraged out. By the time I spotted it, it was usually gone.

On the other hand, markets are intimately connected to human psychology. This offers some predictive capabilities for those who understand it. Read anything by Dr. Alexander Elder, a successful trader and trained psychiatrist, to understand how to use this exploit.

 

[wackypete2]

Instead I believe that succesful traders gain their edge from discretionary decisions such as when to employ which system under which market conditions and when to step aside. Also the proper use of price action and volume can help gain an edge I believe and these are harder to programme.

Yes, exactly!
Your edge is all in your head, no pun intended. You get an edge by studying the market you trade and figuring out its nuances, tricks, traps, etc. Markets do not all behave exactly the same way even at S&R levels.

Peter

 

[bbmac]

Yes, exactly!
Your edge is all in your head, no pun intended. You get an edge by studying the market you trade and figuring out its nuances, tricks, traps, etc. Markets do not all behave exactly the same way even at S&R levels.

Peter

Having an 'instinctive edge' works for some, but with the plethora of competing emotions that can compete at the point of decision, most prefer to make it as non-discretionary as possible by adding some rules/conditions...an edge remains though just a set of conditions that suggest a greater probability of one thing happening over another based on a historical prec****ce and I for one fully subscribe to that view.

G/L

 

[meanreversion]

Maybe our edge is being members of this esteemed trading forum.