I don't believe the market is random. But if by random you mean just taking any ole trade regardless if it is one of your setups or not then the process for such a random trade is exactly the same. You have to look at the contexts and say "if I enter right now" can I structure this trade (by assigning and adjusting reward, risk, probability) to give me a positive traders equation? I will sometimes do this on the fly by the seat of my britches so to speak. I may not see a setup I usually would take but just by how price is dynamically moving around I believe I can make 3 points before I would get stopped out at 6 points SL. So I assign 80% So, 80x3=240 20x6=120 240>120 = positive traders equation Boom I am taking this trade. There is high probability I am going to get 3 points before I would lose 6 points. Doesn't look like a good R:R structure but it probably will end up being a good R:R because it is a high probability trade and that usually means ACR (actual risk) will be small as opposed to the initial risk of 6 points. But it also means if it is high probability I best not count on it being big reward so grab them 3 points when I can. Why? the fact that probability is high can only mean that much of the move has already taken place. There are exceptions like in very strong BO and I hit it just right. You can get one or two of the variables in your favor but rarely will a trader get all three in their favor like in the perfect trade: high probability, big reward, low risk (the perfect trade) Look, bottom line assigning probability and using the traders equation is a great tool to help render a high win rate. It is a simple exercise that can better a traders results. Who in all honestly just hopes for a low win rate? I know the arguments. win rate means nothing...bla bla...I happen to believe win rate is good for the soul. After all, who wants to lose over and over then once in a while win even if ending up in the long haul, profitable. Why not win ALOT and also end up profitable? That is my take on it and how I see it. Not wanting to lose can be a psychological stronghold and wreck a traders account to be sure but to create losses that you have to battle with psychologically because of poor trades and a lack of considering probability is nonsense to me? Not me Jose. I'll take winning over losing EVERY time. Beside after entry, any PT can easily be adjusted for a bigger reward or a smaller reward, than the initial reward, if the dynamic of situation warrants doing so as the trade unfolds.
Well that was a long read. I don't see the equation as being a definable edge. Too many "if you think" & "you assign a probability" parts of the equation for me to be able to nail down something I can use consistently. I happen to believe a good equity curve is better. There is a difference between a poor trade and a losing trade. I like to think all my trades are good trades. More than 50% have a bad outcome. However I manage to make a consistent return. I don't battle with losses. They are part of trading. It's a probability thing. What is important is how much you win and lose, not how many.
Whatever floats your boat. That is the most important thing. It has to suit you. Traders are always looking for certainty in setups but we can never be certain. Even our best efforts can be wrong and we are all trying to outguess the market. I go through the process to help me define the pressures and find a probability figure. Others may find the process too tedious. That is fine. I usually don't have to worry about giving out my secret sauce cause I really don't have any. LOL. Most traders are not going to do what I do although I wish they would as it would make things even more precise and better for me. Most traders want to stick to simple setups that they consider are good setups and just let the "shit hit the fan" and see what happens. I totally understand that. Trading is not easy. It does take a lot of mental energy and effort. Each trader has to find what works for them and the implement it. It is a very hard task to give clear definition and certainty to something that is so uncertain, but not random, like the markets. Happy trading!
volpri, People need to listen to you man. You know what you talking about. I had 2 losses in a roll today. A trading buddy ask me "what happen, what did you do, are you going to change something" I said NOPE, I am not changing a damn thing. Good Trades, can and will go bad. We are trading probabilities, you will lose on trades.
How is that working out for you. Is it really an edge? (Edge = being able to see something in the market in time to be able to exploit it.)
I've heard somewhere that if you can't define your edge you don't have one. My system is a good definition if you can define the system.
As far as technical analysis is concerned, an edge is simply some statistical abnormality that you can profit from consistently in the financial markets. The most obvious one is that markets trend, in other words markets move further than expected, from a purely statistical and mathematical point of view. They produce what mathematicians call "fat tails". Theses fat tails allow trend-following systems to extract money from the market.