i disagree with what somebody earlier said about edges, and TA not being an edge TA is just a tool. as is charting, for that matter. it's a way to represent price and/or volume and/or time it's simply a model saying TA is or isn't an edge is nonsensical it certainly can be used ot GIVE u an edge ANY study of price/volume is TA. it's not just the latest magic indicator (tm) i have 5 main setups i use in intraday scalping and overnight trading YM they are ALL TA based. they all provide edges - iow positive expectancy. that's based on extensive backtesting, as well as real world results it's not that TA is or isn't an Edge. it is the utilization of such just because many (certainly not all) traders/investors USE TA does not mean it cannot provide an edge it merely means u have to apply it in a way that has (to borrow a poker term) positive expectancy for example, i used one of my setups last night it is a TA strategy. backtested (and real world results) it has over 80% successful trades, with an average gain of 35 YM points, and in the (20%) losing trades, it only averages a 20 pt loss that trade gives me an edge. so, i always use it. but it only presents itself on rare occasions (it's based on specific TRIN and AD readings at end of day). TRIN and AD (advance decline) are price derivatives. thus, this is TA imo (in general) the primary element of the edge that we have as individual traders is that we can 1) sit out and NOT trade. we can wait until specific setups that have positive expectancy present themselves. the market is designed (not purposefully, but by the aggregate results of all trade decision) to take a trader's money. Since futures are a zero sum game, the net has to be zero, and most traders will fail. in order to keep an edge we can ONLY enter when we have the odds strongly in our favor. the vast majority of traders simply do not have that discipline. 2) develop a business plan. if you aren't reviewing EVERY trade (good or bad), keeping meticulous records, and developing your trading as a BUSINESS, you are setting yourself up for failure imo. this is serious stuff. pressing a button is TOO easy not to run it like a business. most traders do NOT do this. again, this helps provide an edge 3) ALWAYS set your stops at entry. for a trade setup to have positive expectancy, it has to have predefined stoploss points or else you can't speak to its expectancy since you don't know if u would have been stopped out or bailed on a discretionary basis. TAKE YOUR STOPS. many many many traders hold on and i"hope". that will destroy your edge. one disastrous trade can ruin profit from dozens of small successful trades. trading with an edge means that u need to accept that some trades will lose money. take that loss willingly, without emotion (if u can), and move to the next trade. since the market is merely the aggregate actions of all traders, and traders are human beings with emotions, this is why TA works (imo) . crowds tend to act in a certain way, and emotions tend to have relatively predictable effects on behavior. we see this behavior in charts, and that is why TA works (imo). it merely models behavior in a way that, given discipline, allows us to reveal what is going on, and to enter trades that have a relatively high probability of exceeding most importantly, (and i learned this the hard way) do NOT enter trading until you KNOW u have an edge. until you have tested your setups out - don;'t even think about it. especially highly leveraged futures investing is another story. but in trading, develop your edge first. and if u can't get one. take up something else.
"saying TA is or isn't an edge is nonsensical it certainly can be used ot GIVE u an edge ANY study of price/volume is TA. it's not just the latest magic indicator (tm) i have 5 main setups i use in intraday scalping and overnight trading YM they are ALL TA based. they all provide edges - iow positive expectancy. that's based on extensive backtesting, as well as real world results it's not that TA is or isn't an Edge. it is the utilization of such just because many (certainly not all) traders/investors USE TA does not mean it cannot provide an edge it merely means u have to apply it in a way that has (to borrow a poker term) positive expectancy for example, i used one of my setups last night it is a TA strategy. backtested (and real world results) it has over 80% successful trades, with an average gain of 35 YM points, and in the (20%) losing trades, it only averages a 20 pt loss that trade gives me an edge. so, i always use it. but it only presents itself on rare occasions (it's based on specific TRIN and AD readings at end of day). TRIN and AD (advance decline) are price derivatives. thus, this is TA" maybe an edge is just an emotional state of mind 1. Confidence 2. Discipline 3. Commitment 4. Knowledge these are all things that reflect SOME trader's personalties. You might have a system with a 80% win ratio, but what good is it if you ignore stops, or if your confidence is so low you dont even enter the trade and miss out all together. If you have the 4 things I listed, that is an edge. - nathan
Impossible to calculate without knowing the details of your system. It also depends on what time frame and what market. Calculating this for a coin flip is easy. Calculating this for one of my systems, I could do through simulation pretty quickly. In fact, I just wrote the code and ran it. For example, to get 20 losers in a row for my system, I had to generate 83 million random trades before hitting a 20 in a row losing streak. If I went for 30, I think i would be waiting a very very long time This system has about a 60% win rate. But this is misleading. For example, if you have a system that only goes long, and only holds intraday, you may have easily hit 30 losers in a row during a big market downturn like we had recently, attempting to swim against a big current. Also depends on your trading frequency.
And what if your edge disappears tomorrow? How would you know? How many trades will you execute before you give up? Maybe you'll get lucky and have 100 losers in a row; otherwise the market could drag it out while your "edge" slowly creeps towards no better than random, while you put food on your broker's table. Anyone who says technical analysis is not an edge should say the same for statistical analysis -- they are both projections of what happened in the past continuing on into the future. I tend to agree.
I am pretty sure the market has proven just about all edges are temporary. Except the edge that comes from the ability to make profitable adjustments real time.
how do the successful HF's continue to keep printing money? in time I should think their edges disappear or are reduced ? or do they find new markets and new ways in which to exploit the "other side" ?