I think of the market maker or local edge as the "transactional edge" which is obviously the kind of edge where you can be pretty confident that so long as there is money on the other side of the market they can have that positive expectancy. Of course, some of those transactional edges are short lived as well when competing exchanges come in and cross list or other scenarios such as that one...All the other edges people talk about seem to be a different ball of wax...
Us system traders will disagree with the "Mav". When my equity curve slops at a nice 45 degree slop up with little draw down. That specific system than displays an "edge" or positive expectancy. Number Driven, Pattern, Price and volume or Fundamental driven systems that show positive equity curves certainly have edge. Some sharper than others.
I know of only 3 sure edge in the market. 1-order flow 2- the spread 3- insider information all the other setup or play are higher probability trades only
I think we need Bill Clinton's definition of what an edge is. Or maybe Hillary Clinton's definition of an edge in Cattle futures.
Ok, let me extend my last post and give you something to respond to. I'll give three examples of what I think edge is and you tell me what you think. The first one is obviously the market maker who earns a spread right. Now why is that market makers don't blow up and go broke but traders do? Next one, casinos. Casinos have an edge with every game. The edge varies from game to game but they earn their edge too. Now why is that casinos never go broke and blow up but gamblers do? Third one, the sports bookie. He has an edge. He collects 5% from the winner right. So why is it that bookies never go broke and blow out but sports bettors do. See in each of these categories, the people who have the edge end up sooner or later taking the money from the people who don't have an edge. These edges are real and they last thats why market makers, bookies and casino operators have been around since the beginning of time. That is why these groups of people have amassed huge fortunes. Argue all you want but your not getting their money. They are getting yours. The key for them is to keep finding new suckers. Why? Because if you stop betting with the bookie, trading with the market maker or gambling at the casino, they lose. Why do you think all three of these groups find clever new ways to get you to play. They try to make it as easy as possible for you and in some cases, even convince you that its really you that has the edge not them. This is a suckers ploy. Why do you think casinos have bookshops in their lobby teaching you how to count cards. Why do you think they will let you carry the book with you to the blackjack table. Why does the CBOE and Merc give free seminars on trading their new products. Why does the bookie let you have free bets. It's to get your money. As Bobby Deniro says in the movie "Casino", guys come in here with every system, every strategy in the world. They come in here to try to take our money but sooner or later we get it all.
Than why is the floor of most large exchanges losing traders to the up stair screens? And the mini leading the pit around? If one type of pattern...say a declining wedge has a winning percentage of 66% and a 1.80 win average ..that is a defined edge. The casino has rules and kicks out card counters. The market does not and I do not have to play by defined rules. I make up my own rules and only play when the probabilities are in my favor.
Maverick: those are all edges that you talk about. They are edges that have a longer duration. Of course nothing lasts forever, just ask the Nasdaq market makers or options market makers. There are also edges that have shorter duration. A simple example would be buying dips or new highs in a strong bull market . It works, a lot of people made money during the last bull. The problem is they didn't recognize when the trend ended and gave back most of their gains. That doesn't mean that there was not an edge buying dips or new highs during the bull trend. An edge is anything that you can systematically make money with in the market. The best edges are ones with known duration provided by regulation like market makers have or like the SOES people had when the Nasdaq market makers had to fill their orders. The worst edges are the ones with the most unpredictable duration - the only way you know your edge has stopped working is when you have lost a lot of money.