I make no connection between your two sentences. I deem probability as unnecessary for any trading approach that is a reasoned trading approach. This deeming, to use your words, was a consequence of a process of deductive reasoning in a critical thinking context where science was used. Obviously, most people use probability and get the kind of results you did. In the financial industry that is not going to change. People turn to the gambling orientation for reasons that they have made abundantly clear. The financial industry is a marketing and client retention oriented industry. Clients of the financial industry often use contracts that are 2/20 type contracts. Clients give up this amount annually to get what they get. They get 80 % of net profits less the 2% of capital cost of services. Which is the bigger amount? That is unknown since the two numbers do not have a common basis of comparison. All of the contract above is a bet for both sides of the contract. Both agree based on their view of the probaility of gettting results. Were I to contract with a client; I would simply give them what they ask for as a percentage of their capital. Skip the probability of the CW. Each year they increase their use of their account as collateral for other things they wish to do financially. The contract ends when they receive a payment and their capital back. This is a deal that uses capital as a commodity. This money had earning power and no risk while it was deployed. The the financial industry uses probability; I don't. Here below, the reader can find out why. Scoring has 8 parts. Coin flipping has two parts. There is no probability about the 8 parts of the scoring cycle. All coin flipping is based upon probability and a fair coin. In markets, there is no "fairness" as there is in a coin that may be used for coin flipping in statistics. A market cycle will go through all of its parts to complete its cycle. The cycle has an order of events, rather than the 8 parts happening randomly. In the 3 dimensions of the market cycle, the order of the events comprised by the three dimensions. is a migration from one space to another. Migration occurs rather than random movement or "jumping around". This may become apparent in the coding you did for your back test of the three variables involved in the scoring back testing you did. Tomorrow's Newpaper Today makes very clear the order of events of a cycle and just how the Scoring depicts the train of events. Coding was provided to the public long ago for these 8 events of a cycle. Coding was also provided for how the score goes from one value to the next in the order of events. Many people have used this for quite a while to make money. One result was an average half cycle of 6to 8 days and the average profit was 11.1% per long half cycle. The tangible results included no longer working as an employee, travelling with a custom built tractor and trailer and maintaining a home base along the Pacific coast. For any score there is an equal probability that it will occur. For a fair coin the same is true. 1/8 of the cycle is a buy time and 1/8 of the cycle is a sell time. Before buying and before selling is also known and each time occurs 1/8 of the cycle. This takes risk out of the trading cycle because risk is replaced by an order of events. Risk is replaced by an order of events. Scoring is a binary matter just as flipping a fair coin. Since there are 3 dimensions, 3 coins would be involved if a random result were to be examined. Scoring does not, on the other hand, examine a random set of events occurring. CW people use a coin orientation and they do the 2/20 deal and bet on making money. I have heard that some CW people are not now as wealthy as they once were as a consequence of 2/20. Sales people in the financial ndustry have been making commissions continually, however. I have heard that some "bailing out" has been done. Why aren't coins used in the Scoring relationship of three variables? It is because of the inter-relationship of the three variables in the market cycle. All clients that would contract with me would contract on the basis of the relationship of the three variables. They know the variables of the market come first and scoring is just a tool for making money in market trading. The decision to contract is made on a technical performance basis. For example, a sharpe Ratio of over 60. The market cycle is shown by price's frequency and its period. The two halves of a price cycle are long and short when viewed from the extremes. When viewed from neutrality of the cycle, the two halves are the upper half and the lower half. Volume has its phase angle determined by either definition. The frequency and period are determined by seeing the symmetry of volume to each of the long and short half cycle of price. In other words, volume moves at twice the frequency of price. This is the inter-relationship of price and volume. Using three coins to create random cycle movement ends at this point. It is not a rational conclusion of something to do. Price in its cycle is depicted by displacement (its value), its velocity, and its acceleration/deceleration. So there are points of inflection and limiting values. At these four times, one market variable flips from one state to the other. Therefore its frequency is double that of volume and four times that of price. This variable is market sentiment and there are many technical measures. Thus we have three variables and all are binary (like coins) and they change symmetrically instead of randomly. Scoring, using the state of each variable (dimension) can easily be done as a tool by taking advantage of the conversion of binary numeration to decimal numeration. Making money is done to the extent that it is done by timing the market cycle. Scoring is a tool used for timing the market. 3 dimensions yield an 8 part cycle. The numbering of the parts is a consequence of converting the binary values of each part into a decimal value. For trading, the "count down" is the modus. At 0 to 7 the price trough occurs. By coding this, you get the timing for the entry. The hold values are 7, 6, 5, 4 which are, of course, my phone number for my cell phone. As many know I used to dial all BUT the last digit of my IB and then just do the last number when a trade was required. In PVT, the long trade ends when 4 goes to 3. This is also where the short trade begins. Symmetrically, the short ends with the change from 0 to 7. Thus, timing, through the order of events, replaces whatever coin flipping represents (using probability of something, I suppose). The spectacular aspect of the shift from 0 to 7 AND the shift from 4 to 3 is obvious as a timer signal. ALL THREE DIMENSIONS GO THROUGH A BINARY CHANGE SIMULTANEOUSLY. Each variable has "tells" which forecast their binary shift. Combined, there are 10 to 12 of them. None deal with probability in any way. Emotions are a factor in probability type trading since "betting" is involved. There is an advantage to using coherence as the alternative for trading. Coherence comes into the picture by being able to examine a display using panels for each of the variables. This is particularly true when each panel has only two possible settings. Position trading stocks is best done by zooming in at each stage of use of the Universe. A daily chart gets a stock into the Universe. A 30 minute chart allows the MADA routine to flourish when a stock is on the hot list or the batting order. Finally, a 5 minute charts allows the trader to crossover his capital from one stock to another with precision.
You have an edge when you have a mathematical proof that it is an edge, prior to even trading it. I would also ask the question of how do I know that my probability of blowing up is less than or equal to a number X? Ideally X should be zero. Edge has nothing to do with profitability and of blowing up, although some edges can lead to X=0, and sure profitability. Then the question becomes how to beat the risk free rate.
You know when you have an edge is when you wake up in the morning and have no fear or excitement when the market is about to start. You just know from the scores of days before, you will make profits, like any other job, you are to put in your hours and end of the day you leave, and an hour later, you don't even remember what happened in the markets. Whether you have a profitable day or losing, your family can't tell one way or the other, it has just become a job. What I have always found amusing is traders saying "today was a weird day" or "the markets are changing", all that is telling me is lack of experience, you watch enough bars charts thru enough years, and it is all the same. Recently a friend of mine gave me a chart with no name or prices at margin and said how would I trade it, so I marked it with trendlines and had couple of long trends. Come to find out it was the daily high/low temperatures of Chicago, LOL. Driving down the road, people see buildings, I see bar charts, people see mountains, I see outline of price and where I can draw trendlines. You spend enough time working your craft, and you just know. Happy 4th of July all.
Here are some actionable ideas for you based on my own experience as everyone else seems be too prisoner of their own minds to be able to try and actually help you. If you are just starting out then you most likely do not have an edge, unless you are one of the few with killer instincts, but then again there's always a chance you do. In my opinion, if you manage to be consistently profitable every week for 6 months or even a year, for argument's sake, and you have specific repeatable reasons for opening and closing all of your trades, then I would say you do have a tangible edge. At that point, I would definitely compile trading stats and quantify the edge with standard risk management tools in order to maximize that edge through money management. Yes, very general but you fill in the blanks because there's enough right there to keep you busy for a while. If you can pull off those stats or better for a second year, then you my friend, have an edge.
Your ignorance of probability and statistics doesn't negate reality. Buying your "0 to 7 turn" (per your paper, using spydertrader's code for the scoring and exiting 5 days later) provides statistically indistinguishable results from random entries, which can be had from flipping a fair coin. It doesn't matter how many parts scoring has, or how many "dimensions go through a binary change simultaneously." We've been though this before, for example here: http://www.elitetrader.com/vb/showthread.php?s=&postid=2722912#post2722912
Finally, a trader who match my standards... Please elaborate with real example of a trading system... Do you consider martingale or any form of progression betting "an edge"?
When you can over sleep, trade for an hour, and make more money than having a 9 - 5 job, and then take the rest of the day off.
As I see it, the significance of the results found in testing a system should be in proportion with the number of considerations and conditions one came to discover these results in the first place. I understand there are times one can identify systematic "events" with duration, a pattern of patterns not likely found given chance and use it to one's advantage, but I too believe one must be able to recognize when such a pattern of patterns is no longer evident.