The more I trade the more I get confused with the methods that I trade. I only trade ES and NQ. Some might ask, what is your edge? I trade patterns: Breakout from wedges, pennants, head & shoulders. I trade using indicators based on divergence to place contrarian trades. I have traded similar to floor traders using Central Pivots, R1, R2, S1 and S2. I trade with the trend(pullbacks) and against the trend(divergence). I like using pivot highs/low as an entry technique. Now my point: The other day I was watching the poker world championships on ESPN and it is my belief that trading is very similar to this game. You can play the cards(hand that you've been dealt) and the play the player(bluffing) alike however based on whatever hand(pattern) they were dealt they immediately gave a statistic on the chance of winning based on a players individual hands. When you trade any of the methods above why can there not be a similar statistic? I read many books on trading and everyone gives you high percentage methods/trades(however they hardly ever work). My question to everyone out there, how do you know your method has a real edge? Regards, Tanp21
Here is an Ice-breaker : If you really know you have an edge, there is a very high probability you have a real edge! Now do you know (or think or feel) you have an edge? Excuse me for adding confusions!
If the probability of its showing a profit over a series of trades is greater than the probability of its showing a loss over that same series of trades. That's all there is to it.
(1) I recall reading somewhere: "You don't have an edge if you cannot accurately state what it entails". (2) Rutherford (Lord Kelvin) once said something about scientific knowledge [I don't pretend to quote, if somebody has the exact quote handy, please correct me]: "If you cannot express in numbers what you are talking about, your knowledge is of a meager kind. You may be onto the beginning of something but ..."
Dear I cannot agree more with you. You go out from the assumption that a "method" is available. I am not sure from tanp21's post if this is what he is saying. Of his five methods that he is now "confused" with, none seems to be clearly established. Otherwise it would be trivial to test these using your suggestion. I am afraid that either: (1) all five "methods"are inadequate; or (2) none of the five methods is clearly defined - precondition for a true edge.
2 theories, you can do a search on it. a member named acrary explained it best. You figure out what you're doing, and then you compare it to a similar random strategy. It takes a little brains to come up with the analogous random strategy. My theory is money management is the only edge. And it's exactly like poker. You just keep managing your money until lady luck puts you in a good trade. And then you keep managing your money until you take yourself out. All you do is manage money, the market is the one who makes you profitable. Lousy market, lousy profits. Good market good profits.
I suppose an objective evaluation of a real edge is to measure how many % of a complete trend we have certain % probabilities to capture it. I believe this objective measurement simply because traders can make good money by capturing trends, if possible. (Just don't ask me how!) A method which can only capture a small part of any trends associated with a small probabilities of success wouldn't be a real edge. Just another thought.
Unfortunately, if the method you're using doesn't have a probability of success, you can manage your account down to zero.
Though scalping systems present their own difficulties, there's no inherent reason why one can't find an edge in them. However, due to all the other hurdles which face beginning traders, a scalping system is probably not the best choice for a trading system, at least at the beginning.