Your edge is the reciprocal of the amount of sloppy , panicy, dumb money sloshing around, particularly in the short term.
call it edge, call it psychology, call it KISS, call it pattern, call it statistical, call it probability, call it fatTailedDistribution ... it is all the same. it means the same. it all comes done to whether a "thing" (most neutral term I can think of) observed in prices will happen again in a similar way in these prices. no matter if you find it out by trading, by backtesting, by researching ... it all comes down to the very same thing. no matter if you try to exploit mechanically, by discretionary trading or completely automised. IMO a lot of energy is wasted on different threads discussing the name of the "thing" ... peace
The best edge is to lose less than the other guy, when trading a sensible strategy which stops out...
Only it's important to define the "thing" because then one has a better chance of finding/maintaining it.
jem: I find it interesting that people on the whole seem to accept the market efficiency hypothesis, and at the same time accept the theory that buy and hold is a legitimate money making strategy. Should not market efficiencies wipe out returns to investors? I agree with your observation, generally. I've heard the efficient market theory summed up as on the whole-it's efficient. But in the short run it's incredibly inefficient. Is it efficient for a stock to drop 5 points because they were 2 cents off their earnings? I liken it to survival of the fittest. In the wild, survival of the fittest is a blunt instrument. But overall, as populations fluctuate, there is an admirable efficiency as species interplay to create a balance in the ecosystem. ::ahem:: Modern man, excluded, of course. In fact, I'd purpose that the market place, one's (or one's family's) economic condition-and ability to manage their assets is the modern day equivalent of survival of the fittest. There does indeed have to be another person willing to take the other side of your trade. But it is so unlike trying to unload a lemon of an automobile to a guy who answered your ad in the paper. Nope, he's standing on the curb right next to you, kicking the tires. While you're biting your tongue, hoping he doesn't try the radio, much less turn on the heat and the wipers at the same time. With trading, both sides come to the fringes of the heard to make the trade, only to disappear back into the anonymity of the heard once again. While the circumstances are almost clandestine in manner, making the trade declares you as you step outside the heard. The wolf you keep at bay, isn't the person on the other side of the trade. The wolf is the market. Can you, can anyone, be bold enough to come out of the heard to make their own calls, or disappear into the heard, or watch it all play out from the next ridge? I don't know. But the more I study this fascinating field, I'm convinced you have to do all three. And while "conventional wisdom" says you can't time the markets... that's essentially what you have to do. I see three sets of indicators; market economics/fundamentals, market sentiment and your own emotional/psychological condition. And none of them are efficient. But somehow, that doesn't dissuade me. André
Yes, you are right and that explains why Bill Gates, the founder of Microsloth, did so well in his life. Because his father is also Bill Gates.
this concept that holding period for an investment is what matters is a little nuts to me. I buy something and if it goes down too much i sell it, regardless of how long I have owned it. If it goes up I keep it.