What is an edge?

Discussion in 'Trading' started by Dobbes, Jul 18, 2009.

  1. Dobbes


    Seemingly basic question:

    What is an edge? How do you know you have one?
  2. The best way that I know is to do a statistical analysis.
  3. When you have your edge, you will know. You will not know any time before.

    Its like a "Eureka" moment. And everything you thought you knew about trading gets thrown out the window.

    I looked for an edge in all the wrong places. Just like that holy grail system that promises instant riches.

    Then it dawned on me. I am my own holy grail. Once this became a truth I seeked out an edge that relies mostly on my abilities to identify market inefficiencies.

    Now its just a matter of wash, rinse, repeat.

    Being consistent is an edge.
    Adapting and evolving to change is an edge.
    Throwing on size when your right is an edge.
    Cutting back on size when your wrong is an edge.
    Direct Market Access is an edge.
    Low commissions is an edge.
    Finding the best platform/trading firm is an edge.
    Believing in yourself is an edge.

    Always strife to be better then those before you and those that come after you.

    It takes time to find an exploitable edge. Having that burning desire to succeed in this business will allow you to overcome the learning curve.

    Find that edge and squeeze it for all its worth, it wont last long.

    Think in terms of an pro athlete. How do you think they developed an edge?

    By pushing themselves through limits they never thought existed. Only then will you find your edge, within yourself.
  4. Fierze


    That was a great post. Very deep, wise and true.

    An edge is something that you know better or do better than the majority of other traders out there, that can be systematically transformed into trading profits when used. You can not be sure that you really have an edge until you have solid statistical evidence (from rigorous backtesting), or if you have actually made money consistently from using this knowledge or capability.

    And I agree with the previous poster; If you don't know whether you have an edge or not, then you probably don't. You don't have an edge by chance, and you don't become successful by chance in this game.
  5. Dobbes


    Everything so far seems awfully vague.
  6. It is vague because an edge is simultaneously the absence of something and the presence of many things at once. The absences are that:

    anything you read in a book is not an edge

    anything you read here is not an edge

    anything you find in a charting application is not an edge

    anything a vendor wants to sell you is not an edge

    anything ANYONE shares with you is not an edge.

    The multiple presences are even more confusing because all of the presences work some of the time, but none of the presences work all of the time. I give away nothing to tell you what traders who HAVE an edge will confirm. Intraday, a presence is:

    a particular time slot

    a particularly shaped twitch in price, usually invisible to the uninformed

    a particular pattern of trades on the tape

    a particular pattern of price in multiple time frames

    proximity of price to secret support or resistance levels

    particular patterns in the first derivatives of price or volume.

    You can test everything you can think of, and nothing works by itself. If you try to test any two things together, you will think you found something, but it was a fluke of the finite sample sequence.

    But when you SEE in sequence first one thing, then a second thing, and finally a third thing, AND you have the courage to act irrationally, THEN you have an edge. And that edge is untestable, because it occurs so rarely. As rarely as any other combination of three things occurs out of a universe of thirty of more posible events. So you have to know the ensemble of all the significant events, and have charts that help you see their rare confluences. Personally I think it's too much fucking work, but I have nothing better to do in my declining years than waste my time imagining I see edges and taking the trades.
  7. " Personally I think it's too much fucking work, but I have nothing better to do in my declining years than waste my time imagining I see edges and taking the trades."

    That's the saddest thing I've ever read on ET during all my lurking. Also, the most honest.

    People don't realize they may never find an "edge" no matter how long they search. Certainly, if it goes away in a relatively short period of time, it never was real.

    What reasonable expectation exists that you would ever find a statistical edge? Are you counting on dumb luck with the emphasis on dumb or luck?
  8. JScott


    Hmmmm . . . vague = overly-complicated or overly-simplistic typically. Mostly overly-complicated around these parts.

    To trade you need to know:

    1) the market/security/instrument you're going to trade
    2) timeframe(s) or data presentation that you will watch/analyze
    3) how many contract/shares you will trade
    4) how/when you will enter (the setup)
    5) how/when you will exit

    If you have a positive expectancy (ie, you make money) after forward testing with a lot of <b>real</b> trades, then you have an overall edge. Which might be comprised of individual edges in one or all of the five things mentioned above.

    Keep trading.
  9. Your edge begins with the knowledge you gain through your research and testing that a particular price pattern or market behavior offers a level of predictability and a risk to reward ratio that provides a consistently profitable outcome over time. Without it, one is just "playing" the market in order to have something to talk about on message boards.
  10. ER9


    well technically speaking (and simply) i would have to say an edge is any trading/investing strategy an individual or group of traders can dream up.....be it technical, fundamental, or other wordly etc....that consistantly generates profit at the rate of 51% (or better) gain to 49% (or less) loss.
    #10     Jul 18, 2009