Discussion in 'Trading' started by sabena, May 4, 2003.
How would you quantify an "edge" ?
a positive expectancy over a # of trades
Edge is something real not percieved. An edge is something one person or group of people can get and others can't. For example, earning the spread is an edge. Why? Because you can't do it, market makers can. Another edge is borrowing cost. If one person has to pay 50 basis pts over libor and another person has to pay 150 basis pts over libor, that is an edge. This is why I get a kick out of people who think their TA or magic indicators give them an edge. That is not edge. You can't tell me that because you are really good at reading candlesticks that that is your edge. Doesn't work that way. Another edge is execution, both speed of excecution and personal brokers. But that edge is borderline and kind of in a grey area.
even with a negative expectancy, you
can have an edge even if it doesn't
make you money....
take the E-mini S&P for example.
no edge - random buying and selling
with market orders ; expected average
trade will be -0.25 = the spread
so if your average trade = -.1 that
means you have an "edge" even if if
doesn't make you money......
you can calculate the edge from one's
trades if you know what and edge is
who can answer the riddle ?
To me âedgeâ is the likelihood of net profit.
The difference between a random profit and âedgeâ would be a repeatable pattern or system/method used to reap your profit.
The most likely profit is a market maker who buys at the bid and sells at the offer/ask and locks in automatic profit on the spread or an arbitrage opportunity where you lock in a guaranteed profit.
The concept of an edge is also time dependent. In a strongly trending market, buying on dips can have a high likelihood of profit. A trend can last years or it can last minutes â so the sustainability of an edge is obviously important.
The best edge has the highest likelihood of profit and the longest sustainability.
ok i'll reword it
An edge is something that SIGNIFICANTLY contributes to a positive expectancy over a # of trades.
Free data is not an edge if you are still losing money.
An edge is something you better have, or you'll be giving all your money to those who do.
I agree with Maverick,
He did a good job of defining what edge is. Well as far as quantifying it........
I think you have to qualify "edge". Maverick is correct, but what he is describing is a "hard" edge vs. the "soft" edge that is available to the rest of us if we can create/find it. The "hard edge" players require price excursion just as we do but can profit from a much smaller movement because of thier biz. model. One could even postulate that an excellent "soft edge" player is superior to an excellent hard edge player if placed on an even playing field since the hard edge player is by definition using a crutch not available to the other. Have fun.
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