Is this really an edge?

Discussion in 'Strategy Development' started by illiquid, Jan 17, 2010.

  1. This was posted on neke's journal thread, but I reverse-hijacked it and brought it here so as to allow that thread to stay on topic (may be too late already :()

    So is the above actually an "edge"? Can I ask, what is the difference between the parameters listed above, and instead just saying "sell the high of XYZ and set stop at new high" (after 30, 60, 120 minutes etc)? When looking at any chart in hindsight, wouldn't what I just wrote work absolutely perfectly, each and every time? What do you think would happen if you tried to apply this "edge" in real time?
  2. The only problem I see is just how are lower highs and higher lows determined as they unfold in real time? Suppose you get in at the higher low (so you think) and price does in fact moves up for the next few minutes (usually up to the previous pivot high that precedes the second low or the higher low). But it quickly reverses and goes below the previous higher low.

    That doesn't mean it's not tradeable. In all fairness, might I add that higher lows are one of the best entry methods but it takes more than just eyeing prices. You'll also need to know about momentum and whether it aligns with support, etc.
  3. That sounds like a daytrading firm telling you how to trade. Short tern moving averages don't work well for anything if you are trying to trade consistently with even a bit of leverage, otherwise anyone with a basic system plugged into the Market would make money.
  4. I think NoDoji has a good strategy. I don't know if it is an edge or not. People have different definition on what edge is.

    I think in order to trade well, all aspects of tradings has to be optimized. However, having a good entry strategy would make trading a lot more enjoyable.
  5. Similar trading patterns have been described by a number of people, including Raschke’s “Turtle Soup” and Trader Vic’s 1,2,3 set ups. It is one of my favorite set ups to catch reversals, and if you have disciplines waiting patiently and sticking to you stops, you have a slight edge there.

    However, in real time day trading, there are a few problems:
    1. As Saliva says, how do you know it is a LH or HL as it develops?
    2. If you do not get stopped out in the next few bars, where do you exit?

    To make it an edge, you have read price action and ask more questions, such as: What is the market internal doing? For example, last Friday’s examples are good for shorts since market keeps going down. How the stock behaved the last two days and where are the levels? Do I exit the next level and take profits or let it run since I am likely have catched a true reversals and let it ride, etc. etc.

    The true edge is in the “Art”, if you have discipline and money management, over time, trading this kind of patterns will become your edge for sure.

  6. if that's an edge then i must be einstein

    no disrespect to you or nodoji but we all know an edge is something far beyond chart patterns.

    m&a, insider trading, algorithmic arbitrage, stock drift (also known as trends), and so on are examples of an edge per se.

    just model it and backtest it for 5 to years in 500 symbols. i am pretty sure that when you add commissions and slippage the strategy would turn negative. obviously there will be some symbols that did fine but that doesn't mean they'll continue to do in the future. cherry picking in hindsight is obviously not an edge.
  7. bigpapi


    Heard about something like this numerous times with 15 min candles, you sell under the first 15 min. candle and buy above first 15 min candle, place your stops if and when the stock reverses back to the 15 min candle. This can work wonders if:
    1) you have the sector/industry/market trend going your way (up if you buy down if you sell)
    2) if you spot the industry leader(s) for the day and ride the trend, and:
    3) LEARN WHEN TO TAKE PROFITS! (something Im working on)

    Many may argue this final point, but I am (slowly) beginning to grasp that the exit is actually more important than the entry
  8. Also Hi-Jack your excellent post from another thread here.

    Very well said indeed! Thank you!

    The true edge only lies in understanding how/why the price is making high/low of the day, the players, the market, time frame, levels. Should I get in on the other side ahead of everyone else or should I wait and get in after confirmation, etc. Time and effort is the only formula.
  9. bigpapi


    forgot to mention these two:

    News Events and Analyst Recommendations may help in this strategy, whichever way the wind blows after the announcement you'll be in a good position
  10. bigpapi


    Yup gotta know what's going on behing the scenes otherwise any "system" is garbage, just a honeytrap for Sunday Joe
    #10     Jan 18, 2010