How do you know you have an edge

Discussion in 'Trading' started by traderzhangSan, Jul 2, 2010.

  1. You have been profitable every week for several months now.
    How do you know if you really have an edge or just get lucky?

    how many trades can determine one's true edge? by that I mean winning odds.
  2. When you take all your signals effortlessly.
  3. LeeD


    Being consistently lucky is an edge in itself.
  4. With the VIX this high, everything works. False positives galore. The real test is when the VIX drops and the market ranges tight. Newbs drop like flies. Backtest thoroughly over a period with the VIX under 20. If it turns a profit, and you're okay now, *maybe*. If not, be wary.
  5. zdreg


  6. When you are able to make a decent living out of trading.
  7. Never. You may just be a statistical long-tailed rat.
  8. NoDoji


    You know you have an edge when:

    You can make a list of your prime trading setups and entry signals, and you have a minimum risk:reward ratio below which you will not trade a setup.

    You can move a chart with price bars in your time frame off the screen so that no bars are showing prior to the time you begin trading.

    You can display one bar at a time until a signal bar for a prime setup appears.

    Without displaying the next bar, you can state your entry price, your stop loss price and your target price and then display a bar at a time until either the stop or target price is hit.

    You can do this every day through a variety of market conditions for several months and come out net positive.

    That means you have an edge, but it doesn't mean you'll be profitable. The edge is based on taking all prime setups; if you pick and choose and only trade some of your prime setups, you dilute your edge.
    Datum and JefeTrader like this.
  9. ?????

    Doesn't having an "edge", by definition, means positive expectation over time?

    You can have an edge but NOT profitable?
  10. u21c3f6


    Actually, yes. For those familiar with the Kelly criterion, if you overallocate your bankroll, you can still go bankrupt even if you have an edge.

    #10     Jul 2, 2010