What is an edge?

Discussion in 'Trading' started by axeman, Nov 2, 2002.

  1. Everyone claims you shouldnt trade without an "edge".
    But what is this mystical edge?

    The opening order plays are something you can point
    at with an easily defined edge.

    I can think of a couple more examples with a clear "edge",
    but none of them make BIG money.

    What would a swing trader consider his/her edge???
    Their discipline? Their superior chart reading skills?

    I currently have a system that is working well, but I
    dont feel like I have any edge at all.
    But it works well, so am I an idiot for trading without an "edge"?

    I have superior computer skills, so I consider that my edge,
    and try to leverage that. But its not a trading edge like
    the OO plays for example.

    Is superior tape reading an "edge"?
    Is experience an "edge"?

    I definitely have an edge over anyone just starting
    to day trade, but I would have to simply say that
    in that case, my edge is nothing more than market knowledge.
    Does that count?

    All this edge business has me confused.

    What do you guys consider an "edge"?
    What dont you consider an "edge"?


  2. angelo


    An edge , in the absence of a pure arbitradge, is psychological.
    It is the ability to evaluate a situation and identify a trading opportunity. Then without hesitation or second thought place the trade. If it is not working , immediatley get out. If it is working maximize your advantage. The market doesn't know you exist and doesn't care.
  3. MrDinky


    That's my "edge." I figure there are many other traders much better than me in the other areas you mentioned.

  4. According to Mark Douglas an edge is ...

    nothing more than an indication of a higher probability of one thing happening over another.
  5. Tharp defines an edge as a skill or belief that you have that enhances your probability of making money.

    Combining the two definitions, you would arrive at something like ...

    An edge is a skill or belief that gives you a higher probability of making money (than losing money) in the markets.
  6. I think the most important edge is to pick any system that you believe has some type of positive expectancy and to trade that system religiously.

    I had an edge before trading, totally ignored my old system, took losses, got upset and then realized that the outcome of my efforts was fair because I didn't apply my edge.

    If you have a system that works and you stick to it, then you're ahead of most traders in my opinion. I don't think most traders stick to a solid system for any length of time. I even notice profitable traders with good systems constantly seeking to continue to tweek their system, sometimes without back-testing the results first and playing with a new system with real money.

    Maybe some people are choosing to express themselves through trading. I don't think trading is the place for you to express yourself.

    If it isn't working, it is because:

    a) Your system doesn't work
    b) Your system works but you are not trading your system
    c) Your system works, but you didn't trade it long enough to give it a chance to provide a positive expectancy over time.

    So in order to fix that you need to:

    a) Develop a system that does work
    b) Trade your system and don't get cute with the market
    c) Continue to trade your system that you have tested and give it time to produce results
  7. amilian


    my humble opinion is this:

    the real edge is self discipline ... sticking to a predesigned plan - without exception. Never compromise stops. Mastery of emotions of hope, fear and greed. Planning in advance for every eventuality a trade can take......and having a set rule on how to deal with each. Being able to accept that drawdowns will occur; accepting that losses are part of the game; accepting you'll have a bunch of losing trades in a row.

    On indicators.....success isn't purely about mastering of one or more indicators to give you the best entries either (although half decent entries are vital to be in the running for a profitable day).......but rather, success is about managing exits - whether for taking profits or stopping out. This is what I like about mechanical systems - they provide a consistent and accountable way to deal with taking profits or stopping out. With discretionary trading - for me anyway - my emotions tend to negatively influence trading decisions.

    As far as indicators go, I've found that the % of winners required for success varies - depending on which setup I'm using. Scalping, I need a higher % than if I'm positional trading.

    But I don't think % wins provided by an indicator is the edge either. For eg, I've had days where my scalping setup win percentage has been crappy (40% out of 38 round trips with ES), but I've still finished the day up 50 bucks after all the commissions. How's this?? Well, the ES scalping setup I like to use allows for retargetting in certain circumstances. So where I may initially target 2 points, I may modify that to 5 or more, if the right signals come along before my initial 2 pt target is reached. My stops with this system, on the other hand, never vary. So obviously, if I have a high percentage of winners on a given day, plus I get a few retargetted winners, then this is where the system more than make up for the drawdown days.

    So as far as I see it, "the edge" is mastery of one's emotions - whether by the system use of a mechanical system, or by strict rules employed by the discretionary trader. Once you've mastered the emotions - and mastered the exit, then you'll be in the running for success .......... assuming your setup is half decent.
  8. all those things you mentioned are an edge, axeman. of course, some are bigger edge than others..

    the word gets bandied about so much it's almost got a mystical ring to it...

    in trading REAL edges are pretty hard to come by.. for example, an edge where u consistently get the news before others.. or your software is SO much quicker than anyone elses you are always getting first fill... that kind of stuff (and there's way better examples).. that's rare...

    the only "edges" traders are gonna get are slight edges... which, thankfully, are all that's needed...
  9. nitro


    It is glaringly obvious when you have it, and you get REAL worried everyday that it might be "taken away"...

  10. If you make a market, that is an edge. You constantly buy for less than you sell at.
    #10     Nov 2, 2002