Finding an Edge

[pennycapitalist]

Some years ago I moved to some undeveloped family land in Central Texas. The water there was bad from uncased early oil wells and nothing would grow there but mesquite trees and coyotes. Anyway, I moved a mobile home in and built me a huge pole barn.

In front of the pole barn I put an old whiskey barrel just for looks. I found a rusty old iron like they used to heat on a fireplace, and I put that on top of the whiskey barrel.

One morning, for no particular reason, I lifted up that rusty iron and found a scorpion under there. I killed it and moved on.

The next morning I lifted up that iron again...another scorpion. Until I moved back to the city months later every morning I'd lift up that iron and find a new scorpion.

I have no clue why those scorpions liked it on top of that whiskey barrel under that iron or where they came from...but they did. In the chaos of the world, I'd discovered a pattern of behavior that repeated over and over again. Why didn't matter; it just worked.

I moved and someone stole the whiskey barrel and the pole barn. Patterns change. I believe you can find recurring patterns of order in the chaos of the world and the market. You don't have to understand 'em and you don't have to figure 'em out. You just have to pay attention! Oh...and if you are not careful you could get stung!

 

[Pat Riley]

Did they ever catch the people who stole your barn? Did the insurance pay up? Texas can be a tough place to farm. What with all the scorpions and people thieving your barn and stuff. I used to have a ranch in the centre of Dublin, but everything got nicked. So I guess what yer really saying is take great care selecting where to put yer farm.

 

[pennycapitalist]

That pole barn was stacked full of worldly possessions--many of them still in the unwrapped packages they'd come in. I had double four foot wide doors which I would close and lock on each trip back to my new home 85 miles north. I'd take a load home each weekend, and the thieves would get as much as they could. I'd left a note asking them to please close the doors to the barn, but they always left 'em wide open.

It took a couple of months but we cleaned out that barn. I left the trash and the stuff I didn't want, but the thieves took everything even the trash. I guess they burned it to keep warm in the winter.

Finally they took the barn. I'd put poles in the ground with concrete but they pulled all of them up except one which broke. I don't know if the thieves or the scorpions got the barrel and the iron.

I did learn I didn't need all that stuff. No the cops never caught 'em...never looked for 'em. In that part of the country everyone is a cop..deputy sheriff. They all have a badge and a gun....like the guy in Tulsa that couldn't tell the difference between a gun and a Tasar.

The point really is that most of the world and the market is random. Most events have a probability of 50/50. Whichever way they go, the final result is skewed beyond any foreseeable certainty. Like the behavior of the scorpions in this true story there are some behaviors that have much greater than 50/50 probabilities. They can be discovered and exploited within the probability they present.

Too much exploitation and the behavior will change. That's why the probability of so many systems that once worked is reduced to 50/50 probability of chaos. Sometimes the probability of an old system is reduced so much as to become a reliable fade.

Finding an edge is not hard because they are difficult to find. Finding an edge is hard because traders are human and behave in predictable ways. By definition people are the crowd, and the crowd is always wrong in the end, because once the crowd is in the market...there is no one left to buy (except those few who didn't follow the crowd) the price goes down....and the rich get richer.

 

[Pat Riley]

Finding an edge struck a chord with me and my failed ranch in Dublin.

Me uncle sold it ta me for 50 euros. You probably know it better as St. Stephen’s Green these days. It was actually called that back then too and I asked him about that and he crossed his heart and hoped to die if it wasn’t his to sell, so I had no reason to disbelieve him did I?

I had six sheep, a cow and two pigs and three Alpacas – they’re all the rage don’t you know. I still allowed all the locals and tourists to come through as it made no difference to me and then I realised the animals were getting a lot of fond attention and I thought to meself (this is the edge) that instead of me buying the feed and giving it to them meself, I could margin it up ta 1000% by selling it in small brown bags to the public and getting them to pay me for the privilege of feeding me own livestock. Well things were dandy for a while and I got bored. (Here’s the other edge) On the western edge by York St I thought I’d start growin some veg ta sell. So I started ploughing It up and it’s at this point the authorities moved in. They insisted I was mistaken in the ownership of the land and I even showed them the note me uncle had written down he was transferring the title to meself, but I may as well have been talking to an Irishmen. Long and short of it is, I was turfed off me own land and had to find another way to make a livin. No idea what happened to me livestock but Smith’s family butcher on Upper Stephen Street has had that smug sort of “I’ve has one over on you” look ever since.

One of the Alpacas stood as a Councillor for Fingal and was duly elected. Good luck to him I say. No idea what happened to the other two.

But I agree with ya, finding an edge is tough, but it's even tougher finding a good metaphor for finding an edge.

 

[tar]

Edge is an illusion created by retail traders to justify trading for ten years without making a dime ...

 

[Pat Riley]

Edge is an illusion created by retail traders to justify trading for ten years without making a dime ...

You know what tar, I think you've just made a rather profound statement. Without wishing to taking pennycapitalist's thread off course at all, one big edge a professional has over retail is that he/she would not get to trade for 10 years without making a dime. Ya have someone sitting above you letting you know long before that sort of period has expired that you are not going to continue if you haven't delivered the goods. Forget that what pros do is a totally different set of clubs. You could extend this analogy to any profession. Engineering, medicine, sales. If you don't make the grade you get told and told rather quickly before they put you out of their misery.

I doubt there are many retail traders who have anyone in a position to pull them if they don't make the grade. If they did, I feel there would be just as many retails side players being unsuccessful at the game, but they'd lose far less in finding out and waste less time doing so before freeing up their time to pursue a more promising line of endeavour or enterprise.

If there is an edge to suggest to aspiring retail side is that if you haven't made profits by a given point or set time after commencement, commit to giving up.

 

[BlueRoo]

Mark Douglas refers to an edge is simply something that puts probability in your favour...after that an edge is only as good as your money and risk management...If you don't have and edge and a process then all you are doing is sitting at a roulette table...trading is not gambling...trading is having extreme discipline to follow a plan that applies an edge and manages the risk...the issue is that the edge is not what matters...it can be anything...it is the process that is important...

 

[pennycapitalist]

Once I believed that the existence of traders who consistently made money proved that prices were not random. Then I learned that an edge can and does exist right along with random price movements of a constantly changing human psychology that decides prices. Now I see it as a little order in a lot of chaos. i90% of traders lose to 10% that win by finding an edge and using it consistently. Sometimes random movement will take a price right away from the established probability of an edge. In any moment, anything can happen. To be consistently successful a trader must accept the random move and accept the risk he takes as he pursues his edge over a series of plays and never expect the individual price to do what he wants except over the full series of his sample set. A trader must adjust his trading over a sample set of at least 20 but better 1000 trades. Most traders adjust their next trade to whatever their last one, two, or three trades taught them, and patterns don't work that consistently. Most traders never give their edge a chance to work its magic, they end up designing their next trade to conform to the last random event in their near experience.

 

[NVP]

interesting thread i thought i’d resurrect .....

edge anybody ?

personally i think a lot of good traders don’t fulfill their potential bec@use they don’t give their systems a chance to breathe ......in other words they may have indeed found an edge but don’t let sample size expand to capitalise on it

having said that most wannabes traders never even get near having an edge in that large 95% losing pool.....

N