What do you mean by "Trader's Edge"? | Forex Factory

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What do you mean by "Trader's Edge"?

  • #1
  • First Post: Nov 24, 2005 10:24pm Nov 24, 2005 10:24pm
Hi,

Anybody here read Van Tharp's TYWTFF?
Anyway, I'm re-reading the book and I'm currently picking up gems I didn't notice during the first time I read the book.. BUt anyway, here's what I'd want to know..

In the book, he mentioned something about a certain edge.. I think it was on the setting of objective part.. He wrote his conversation with Trendstat's manager Mr. Serenity.. Sorry I already forgot his name..

But anyway, in one of his questions there, Van Tharp asked Mr. Serenity (now I remember, Tom Basso), about what his edge was.. The way I understand it, or my impression of that edge is something that you have that other traders don't have..

Is my understanding correct or did I exaggerate? I'm on the process of building a system that works for me, but I think for my trading to be successful, I think I need to have that certain edge..

Can somebody please guide me here?

Thanks...
  • #2
  • Nov 24, 2005 10:37pm Nov 24, 2005 10:37pm
Traders Edge in general means any type of action that you take to make the market's 50% probability greater on your behalf. So whatever you use, your chances are now greater than 50 %

It could be an indicator, a certain money mgment philosophy, some rule you use to trade, a system, or whatever. Generally, the more things you use to give you a greater that 50/50 chance the better/bigger your edge.


Lou
  • #3
  • Nov 24, 2005 10:42pm Nov 24, 2005 10:42pm
Quoting Lou
Traders Edge in general means any type of action that you take to make the market's 50% probability greater on your behalf. So whatever you use, your chances are now greater than 50 %

It could be an indicator, a certain money mgment philosophy, some rule you use to trade, a system, or whatever. Generally, the more things you use to give you a greater that 50/50 chance the better/bigger your edge.


Lou
Ohhhh..... now I know...
I was actually thinking of it something like that..

Thanks Lou..
  • #4
  • Nov 25, 2005 1:47am Nov 25, 2005 1:47am
Your trading edge doesn't need to make money 50% of the time. Tharp is talking about your edge being expectancy - a system with +ve expectancy.

You calculate expectancy:

%win x ave win - % loss x ave loss

This will tell you how much you would expect to make/lose on average with each trade. If this figure is +ve, then you have an edge in the market.

Simon
  • #5
  • Nov 25, 2005 2:17am Nov 25, 2005 2:17am
As I posted in the thread on the Forex Expo, Rob Booker said do not trade unless you feel that you have an edge. In my opinion, I would say an edge is not something you have that other traders do not have, but an edge over the market. Demo trade for at least 6 mo. and study technicals and/or fundamentals, and money management during that time and trade with them until you can be consistently profitable, such as averaging at least 20 pips per day, before going live. At that point,
then I would say you have an edge. The edge I am working on is trading economic annoucements for entry and utilizing technicals for exit, and I plan on learning about currency options for hedging my position. I am learning
all I can about forex before going live. I obtained a wealth of information from
the forex expo from the speakers, vendors, a great book, etc., and it is going to take me a while to digest all of it.
  • #6
  • Nov 25, 2005 4:10am Nov 25, 2005 4:10am
Quoting DrRock
Your trading edge doesn't need to make money 50% of the time. Tharp is talking about your edge being expectancy - a system with +ve expectancy.

You calculate expectancy:

%win x ave win - % loss x ave loss

This will tell you how much you would expect to make/lose on average with each trade. If this figure is +ve, then you have an edge in the market.

Simon
Thanks Simon..

From the way I look at it now, I think basically, it's something in your system that gives it a positive expectancy... It can be a combination of indicators, money management, etc..

Thanks for your input guys.. You're of great help..
Athan
  • #7
  • Nov 25, 2005 5:01am Nov 25, 2005 5:01am
Quoting eastmaels
Thanks Simon..

From the way I look at it now, I think basically, it's something in your system that gives it a positive expectancy... It can be a combination of indicators, money management, etc..

Thanks for your input guys.. You're of great help..
Athan
It isn't something IN your system that is your edge it IS your system that is your edge.

Simon
  • #8
  • Nov 25, 2005 5:06am Nov 25, 2005 5:06am
Always best to consider 'The Edge" of a sample of say 20+ trades, of a system, rather than one trade.
  • #9
  • Nov 25, 2005 5:15am Nov 25, 2005 5:15am
The edge can be sharp, the edge can be blunt. Most importantly, the edge can be sharpened. If you are not careful, you can lose your edge.
Maybe it doesn't matter whether it is inside of you or inside of your system. Maybe the edge can be singular or multiple (think of the Gillette Mach III Razor).

If market conditions change suddenly there is a risk off falling of your edge.
"Always bet on black"
  • #10
  • Nov 25, 2005 8:03am Nov 25, 2005 8:03am
Quoting DrRock
%win x avg win - % loss x avg loss
That's right.

Apply that formula over AT LEAST six months worth of demo trading and if the outcome is in green color, then you can start trading real money, not before.
  • #11
  • Nov 25, 2005 5:51pm Nov 25, 2005 5:51pm
If you are trading a purely mechanical system then IMO you only need to demo it for a couple of days to make sure the logic of it is correct in realtime. No need to demo a mechanical, backtested trading system.

Simon
  • #12
  • Nov 25, 2005 8:37pm Nov 25, 2005 8:37pm
Quoting eastmaels
Hi,

Anybody here read Van Tharp's TYWTFF?
Anyway, I'm re-reading the book and I'm currently picking up gems I didn't notice during the first time I read the book.. BUt anyway, here's what I'd want to know..

In the book, he mentioned something about a certain edge.. I think it was on the setting of objective part.. He wrote his conversation with Trendstat's manager Mr. Serenity.. Sorry I already forgot his name..

But anyway, in one of his questions there, Van Tharp asked Mr. Serenity (now I remember, Tom Basso), about what his edge was.. The way I understand it, or my impression of that edge is something that you have that other traders don't have..

Is my understanding correct or did I exaggerate? I'm on the process of building a system that works for me, but I think for my trading to be successful, I think I need to have that certain edge..

Can somebody please guide me here?

Thanks...

In my opinion. having an edge in your trading is just like having an edge in anything else you are doing. A tennis player can have his serve as an edge, this is his strength which usually no body can compete with at, of course other skills must be good, but he doesn't need to beat all other players in every single skill, this is practically impossible. A companys' edge can be the R&D department, they have the smartest guys in research and development, but they might have a normal finance or marketing department, but they still have an edge.

If you have an edge and you don't use it, you have no chance to win the game. If you have an edge and you don't sharpen it, soon someone else will gain it or sharpen it further than you and will soon beat you and you will find yourself without one actually. If you have an edge and are not searching for other ones to develope, you won't win consistently.


Thanks,

Nader
  • #13
  • Nov 26, 2005 5:02am Nov 26, 2005 5:02am
Hi,
Quoting WTB
That's right.

Apply that formula over AT LEAST six months worth of demo trading and if the outcome is in green color, then you can start trading real money, not before.
I would be very interested in hearing your reasoning for 6 months. Is it personal experience?

Best regards
Alan
  • #14
  • Nov 26, 2005 5:56am Nov 26, 2005 5:56am
I don't know whether it makes sense to have a standard time period for back-testing. Surely, it depends on your trading style ie the trading frequency of a day trader, a positional trader and a trend follower or momentum trader will all be very different.

Maybe you should focus on a number of observations instead of a fixed horizon ?

On the trading edge, I just realised that 'edge mirages' may exist. When you are crossing the desert of 'no returns', its easy to become delusional. This is where your trading methodolgy has yielded a profit and nice metrics, but it is purely due to luck. The luck factor will no doubt create a lot of mirages even after back-testing. Its difficult but being rationale and applying logic and reasoning can help provide clarity, but even then you need to make sure you are not working with a backward looking bias and simply justifying the results. Knowledge should help reduce fallibility.

Hope this makes some sense?
"Always bet on black"
  • #15
  • Nov 26, 2005 8:11am Nov 26, 2005 8:11am
Quoting abobtrader
I don't know whether it makes sense to have a standard time period for back-testing. Surely, it depends on your trading style ie the trading frequency of a day trader, a positional trader and a trend follower or momentum trader will all be very different.

Maybe you should focus on a number of observations instead of a fixed horizon ?
It is not just number of observations but also market conditions. Lets say that you were silly enough to make up a system that does well in USD strength and poorly in USD weakness. If you only tested it over the last couple of months then it probably would do quite well regardless of the number of observations but if you tested it over the last couple of years, you would certainly see quite different results.

I always test my systems over as much data as possible. I have 11 years of daily and at least 100,000 bars of minute, 5 minute or whatever else.

You also need to make sure that you don't over optimise the system and do in and out of sample testing.

Simon
  • #16
  • Nov 26, 2005 8:44am Nov 26, 2005 8:44am
Quoting firehorse
Hi,I would be very interested in hearing your reasoning for 6 months. Is it personal experience?
The 6 months deadline was just a random figure to express a long-enough period of time. It could be either 6 months worth of trading, or 100 trades, etc, as long as it's a significant enough time span. I hear time and again newcomers saying stuff like "wow, I have made 400 pips this month, Im going live next month!". That is plain madness. You want to successfully trade demo for a lenghty period of time before going live because:

1) you need to build up confidence in your system. You cannot trust a system just because you scored 8 wins out of 10 trades. However, you can trust a system if it scored 80 out of 100. The longer the testing period, the stronger the confidence (and thus less risk of emotion-driven trading).

2) if you only demo test a system for a short period of time, you incur in the risk of, perhaps, having gone through of a very benevolent market-conditions. Perhaps the market has been nicely trending and you havent gone thru any whipsaw yet. That's why you wanna stretch the demo horizon line, to make sure you have battled through every market condition.

3) the longer you demo test your system, the more familiar you are with it. Every day we face new scenarios as traders, so the more accustomed you are with your system, the better you will interpretate unexpected situations.
  • #17
  • Nov 26, 2005 9:30am Nov 26, 2005 9:30am
Hi,
Quoting WTB
The 6 months deadline was just a random figure to express a long-enough period of time.
Thank you for clarifying

Best regards
Alan
  • #18
  • Last Post: May 17, 2019 7:11am May 17, 2019 7:11am
sorry, I haven't read it yet. what's the matter?
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