Where's the "Edge"?

Discussion in 'Trading' started by Hello_Dollars, Jul 31, 2003.

  1. Hi all,

    I'm new to this board, but not to trading, having traded options primarily using volatility-based approaches with a fair amount of success for several years. More recently, I've begun dabbling in daytrading stocks with some "play money". While I enjoy the instant gratification as compared to my position options plays, I know that for me there's no way I could ever pay the milk money over the long-term daytrading stocks.

    I base that view on the belief that, as compared to what I do in the options arena, there's simply no "edge" for me in trading stocks. Indeed, I can't see where such an edge might be derived by anyone using short-term time horizons, particularly as I am somewhat skeptical of the viability of any system-based approaches.

    Since I'm sure my lack of vision stems from my own ignorance and trading bias, perhaps some successful stock traders here could, without giving away any trade secrets, educate me as to where, beyond the unique skills of the trader him or herself, one might derive a theoretical edge in daytrading stocks that should lead to profits over the long-term. Thanks much.


  2. It is a fact, there are traders making a living trading, so the "edge" certainly is not a myth.

    I don't think that you can define an edge for someone while disregarding the skill of the trader, as you request. The trader's skill is always a crucial factor to success. If it were not, and you could separate the trader's skill from the definition of the edge, then mechanical systems would work well, which as you suggest is not the case. In any case your system is always subject to being "found out" by the marketplace, killing it's effectiveness.

    Essentially the goal is to predict and exploit known occurances in the marketplace to the extent that it covers your trading costs and gives you some profit left over. Of course, you have no control over what happens in the markets (unless you trade huge size and can push markets around), but you do have some say involving your costs, and certainly in your decisions.

    I would suggest to begin - get your trading costs as low as humanly possible, find a style that suits your personality (there are an unlimited number of styles out there commonly known), and set modest expectations. Most importantly, develop your skills as a trader, and do not get greedy.
  3. Thanks for the thoughtful response. I've no doubt that what you say is true. Indeed, I run into similar skepticism all the time regarding my ability to generate consistent profits trading options. And yet I've done it long enough now to have a reasonable degree of confidence in my ability to do so for years to come, notwithstanding the inevitable draw down or two.

    But I also agree, without meaning to pat myself on the back, that the skill and/or experience level of the individual trader is critical. Or, to put it another way, and as you said, finding a trading approach that represents a "good fit" with one's personality is essential to one's long-term success. That, among other reasons, is why, I believe, I've done well with my options strategies.

    Now with regard to trading stocks, other than being fairly well capitalized, I'm not sure I have the other attributes necessary to succeed, including having the proper disposition. Still, I must admit that, unlike my options trades, which typically require 2-4 weeks to generate meaningful profits, it is fun making a few grand in the span of a few minutes and then being able to sleep soundly at night without having any risk left in the market. Of course, it's never quite that easy and I'm sure it would only be a matter of time before some of the sharks on this board took all my money if I ever tried to make a serious go at it with stocks.