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A trader's edge - myth or reality?

  • #21
  • Feb 19, 2010 4:25am Feb 19, 2010 4:25am
Quoting mbqb11
I have read many of her papers and spoke to her a few times as well. The papers are well done...
wow, how did it go?
when did this happen, Sir?
Thanks!
  • #22
  • Feb 19, 2010 8:33am Feb 19, 2010 8:33am
Quoting woo
True, but this fact then implies, that you wont generall y find any edges reading a book. However, one cant rule out the possibility that some on the forum might once in a while shed some light on edges
You will never find an edge reading a book. But you might find a system that probably doesn't work for long. The fact is you must study the markets and find something that works for you. Some find an edge; others find and follow a trading system. As long as it works, you are on the right track.
  • #23
  • Feb 19, 2010 12:09pm Feb 19, 2010 12:09pm
Quoting blacksun1
well, let me throw something out there. you dont NEED an edge. if an edge was absolutely neccesary to make money, the market wouldn't exist. think about it, the market exists because people are still trading and making money. not everyone making money can have an edge, otherwise it wouldnt be an edge. fromt that theory you dont NEED and edge to be a successful trader. an edge can make you successful faster maybe, but you dont need one to be successful. it will just take time.
the only edge I know of seriously is MM it works across all entry techniques and allows anyone to make money as long as u trust it. which is pretty much i think that blacksun is getting at. get in the market... cut losses let winners run... keep leverage low.. in finance school we had bloomberg guy come in when I was taking the classes for the certificate... and he was like "run all the backtests you want unless u can cut your losses and let winners run your not gonna make money."
  • #24
  • Feb 19, 2010 12:27pm Feb 19, 2010 12:27pm
Quoting supremeChaos
wow, how did it go?
when did this happen, Sir?
Thanks!
She was very nice, this was a long time ago
  • #25
  • Feb 19, 2010 12:28pm Feb 19, 2010 12:28pm
Quoting domino
the only edge I know of seriously is MM it works across all entry techniques and allows anyone to make money as long as u trust it. which is pretty much i think that blacksun is getting at. get in the market... cut losses let winners run... keep leverage low.. in finance school we had bloomberg guy come in when I was taking the classes for the certificate... and he was like "run all the backtests you want unless u can cut your losses and let winners run your not gonna make money."
Sorry but MM is not an edge. MM can NEVER EVER EVER turn a losing system with no edge into a winning one. Over the long run it will eventually lose. This is just math(search Hanover on these boards for him proving this many times math wise for the skeptics of math). Saying cut your losses and let winners run is getting into a method and is not MM.
  • #26
  • Feb 19, 2010 12:30pm Feb 19, 2010 12:30pm
Quoting Vorbis
Try searching for this research paper :

"Currency orders and exchange-rate dynamics:
explaining the success of technical analysis"
by C. L. Osler

It is quite a well researched and detailed description of how and why various orders tend to cluster at or just beyond round numbers.
Osler wrote a follow up to this paper two months later called "Predictable Order Flow and Exchange Rate Dynamics".
  • #27
  • Feb 19, 2010 12:34pm Feb 19, 2010 12:34pm
Osler is a very prolific writer and researcher. Here is a copy of her CV if anyone is interested. It lists her professional publications and working papers.
Attached File(s)
File Type: pdf Carol%20Osler-CV.pdf   40 KB | 1,104 downloads
  • #28
  • Feb 19, 2010 12:51pm Feb 19, 2010 12:51pm
I "googled" her and found her homepage... then clicked on her professional biography.

A quote from there:

" In addition, she identified order clustering as a potential source of the predictive power of certain strategies."

So if someone could go ahead and read all of her works over the week-end, and give us a nice synopsis. Then formulate an EA, back test it, and reveal the "tweaked" winning version before Monday morning...that would be phenomenal.


Seriously though, good stuff...thanks for sharing it!
  • #29
  • Feb 19, 2010 12:56pm Feb 19, 2010 12:56pm
Nice thread and PDF's guys - Thanks!

Been a bit of a dry spell for info of substance around here lately.
  • #30
  • Edited 1:36pm Feb 19, 2010 1:15pm | Edited 1:36pm
Quoting mbqb11
Sorry but MM is not an edge. MM can NEVER EVER EVER turn a losing system with no edge into a winning one. Over the long run it will eventually lose. This is just math(search Hanover on these boards for him proving this many times math wise for the skeptics of math). Saying cut your losses and let winners run is getting into a method and is not MM.
K ill make sure to tell the firm that we are operating on a lie.. and will eventually go bankrupt after a 3 year winning streak through some of the hardest trading periods ever. oh yeah I got a list of people you should call and correct to.. like new york institute of finance thats one of the most respected trading schools look up the book millionare traders... youll notice each one came from the same new york institute of finance... but call them and tell them they are wrong... oh yeah call penn state university and bloomberg and call Upenn..
  • #31
  • Feb 19, 2010 1:31pm Feb 19, 2010 1:31pm
Quoting Mindsphere
Let me preface this by saying that I am not yet a consistently profitable trader. I mostly trade demo accounts or tiny lot-sizes. I've tried many systems, written numerous EAs and have most recently been developing a manual trading system of my own. This system appears, on my manual back-testing to be profitable, but I am hoping to code most of it so that its true efficacy can be tested without any allowance for human "curve-fitting". This brings me to my thoughts on the trader's edge.

There are some accepted "truths" in the forex world....
Hopefully I can help. After much work and frustration (I remember being in your shoes and know exactly what you are thinking) I am fortunate enough to make a good living trading the Forex. What I think about support and resistance is the same as I think about PIVOTS or FIBO. If the trading world did not believe in them, they wouldn't work. There was a time when Tom demark trend lines were considered blips and not reliable and a 3 touch TL was best. However Mr. Demark pointed out that those "blips" are indeed valuable. You can goo search him if you are not sure what I am referencing.

Anyways, my theory is central banks, "big players" have a price they are going to buy or sell at for whatever reason, which in turn moves the markets. The second time that supp or res comes along the remainder of the market comes along and says "it should bounce here"...and therefore it becomes a self-fulfilling prophecy.

I have found much more sanity using higher timeframe supp and res and correlating it with lower timeframes. It will bounce around in between on more minor s/r, but a good game plan incorporating both higher and lower timeframes should save you some sanity.

Hope that helped. If not, my bad.
  • #32
  • Feb 19, 2010 2:04pm Feb 19, 2010 2:04pm
Quoting domino
K ill make sure to tell the firm that we are operating on a lie.. and will eventually go bankrupt after a 3 year winning streak through some of the hardest trading periods ever. oh yeah I got a list of people you should call and correct to.. like new york institute of finance thats one of the most respected trading schools look up the book millionare traders... youll notice each one came from the same new york institute of finance... but call them and tell them they are wrong... oh yeah call penn state university and bloomberg and call Upenn..
WOW! Are you really arguing that a negative expectancy system can be profitable with good money management? Because MBQB11 was saying that a negative expectancy system will lose no matter how good the MM is.

You do know what 'negative expectancy' means right?
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #33
  • Feb 19, 2010 2:21pm Feb 19, 2010 2:21pm
Quoting LasVahGoose
WOW! Are you really arguing that a negative expectancy system can be profitable with good money management? Because that is all MBQB11 was saying.
just by saying negative expectancy system.. or postive expectancy system you are railroading yourself into losses... gamblers think well I can use Win rate*distance from entrace*price per pip=x$ and loss rate * loss distance from entrace*price per pip=y$ and as long as X$-Y$= + return ill make money... but since the market does not operate within those confines neither positive or negative expectancies will ever be positive and negative expectancies in the future.. people seem to think to be a trader I need this awesome entrance point and exit point and the job is done...
short answer no..
for decades professional money managers have proven that longer Time in the market is more profitable than condition based trading setups that take a market neutral view aka long and short. what youll find is professional ...(money managers) <- notice they use those word in their names they diversify their trades using longer time in the markets... and do not over expose and only take when the trade is mature.. ask them what their winrate*distance from entrance*price per pip = to ... and youll get slapped or thrown out.
  • #34
  • Feb 19, 2010 3:43pm Feb 19, 2010 3:43pm
Those money managers have an edge because they optimise the entry, in your own words:
Quote
and do not over expose and only take when the trade is mature
MM is just a tool, nothing more. To be profitable you must have at least one variable in your methodology which puts the odds in your favor. The variables of the professional money managers are:
1) the tendency of every pair to make long trends
2) a good entry based on fundamentals and/or some technical analysis
There are maybe more but these 2 are by far the most important.

Is is even possible to lose even if someone uses sound MM but the edge is not big enough to compensate for the inevitable drawdowns and the costs of transactions. But there's no way (mathematically proven) that sound MM with no edge will prove profitable in the long run.
  • #35
  • Feb 19, 2010 3:57pm Feb 19, 2010 3:57pm
Quoting LasVahGoose
WOW! Are you really arguing that a negative expectancy system can be profitable with good money management? Because MBQB11 was saying that a negative expectancy system will lose no matter how good the MM is.

You do know what 'negative expectancy' means right?
Hey I know why I never peek over this side anymore. Sorry to disrupt.

Best of luck all

Mike
  • #36
  • Feb 19, 2010 4:24pm Feb 19, 2010 4:24pm
Quoting mbqb11
Hey I know why I never peek over this side anymore. Sorry to disrupt.

Best of luck all

Mike
Your "disruptions" are always welcome.

About the only chance to learn something around here.
  • #37
  • Feb 19, 2010 4:31pm Feb 19, 2010 4:31pm
Quoting domino
just by saying negative expectancy system.. or postive expectancy system you are railroading yourself into losses... gamblers think well I can use Win rate*distance from entrace*price per pip=x$ and loss rate * loss distance from entrace*price per pip=y$ and as long as X$-Y$= + return ill make money... but since the market does not operate within those confines neither positive or negative expectancies will ever be positive and negative expectancies in the future.. people seem to think to be a trader I need this awesome entrance point and exit point...
Roulette is an example of a negative expectancy game, if you think you can beat it with money management, good luck.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #38
  • Feb 19, 2010 4:40pm Feb 19, 2010 4:40pm
There are a couple of ways to quantify what "money management" is. One way relates to an "account-level" view and isn't related to any decisions that involve price - like, for instance, when to take money out of the account at a certain benchmark percent gain, how much percent to take out, etc. Another aspect of "money management" deals more with in-trade positioning (often referred to as "position sizing"), and deals with percent risk per trade, or maximum pips to risk...things like that.

While mastering money management is important if one aims to both maximize return while at the same time to absorb any drawdowns (more or less) - if money management was all there was to trading, then theoretically one could enter and exit randomly and achieve profits, without even looking at a chart or knowing the price. But of course, this isn't possible. Without sound judgement on likely direction, without the capacity to act confidently and freely and decisively (among other things), one cannot hope to make money.
  • #39
  • Feb 19, 2010 5:08pm Feb 19, 2010 5:08pm
Trader's edge comes from only one source - a method with identifiable edge. Meaning over time, your gains outsize your losses (number of wins vs losses is irrelevant)

Money management - only helps reduce the bleeding when losses come around. And helps increase profits through compounding

Psychology - If you keep breaking your rules, it's probably you don't have an edge and you're trying to avoid the loss. If you are breaking the rules when you have evidence that the method is sound..then you're crazy. Either way, having proper mindset helps you execute your plan. But the plan can be a winning or a losing one.

my 0.2
  • #40
  • Feb 19, 2010 5:37pm Feb 19, 2010 5:37pm
Quoting aiyahmarklah
A trader's edge, myth or reality ? I believe you can find your answer by studying Efficient Market Hypothesis. Louis Bachelier's theory is that nobody can beat the market except by sheer luck. Later people like Paul Samuelson also widely promoted EMH and it is very well received. He classify those cases of people making above average returns as UNEXPLAINED. I believe till today, it is still "unexplained". And if you look into those unexplained cases, these people do not think that markets are efficient, and that they DO have an edge, people like...
If I want to get my car fixed, I'll see a mechanic. Likewise, if I want to know about the market, I'll ask a trader, not some inexperienced academic.

Quoting domino
the only edge I know of seriously is MM it works across all entry techniques and allows anyone to make money as long as u trust it. which is pretty much i think that blacksun is getting at. get in the market... cut losses let winners run... keep leverage low.. in finance school we had bloomberg guy come in when I was taking the classes for the certificate... and he was like "run all the backtests you want unless u can cut your losses and let winners run your not gonna make money."
As Lionstrike suggests, many people mistake money management and trade strategy. Money management is what you risk on the trade. Cutting losses and letting winners run is trade management, not money management. That said, choosing a certain risk-reward does nothing unless you can identify good opportunities. If I make random entries at a 2:1 reward-risk, I will probably do no better than if it was 1:2, 1:1 or 3:1. All I'd be doing is changing the distribution of results - high reward-risk, lower winrate; lower reward-risk, higher winrate.


One mistake people make is assuming that the market has an equal chance of moving in either direction, calling it a coinflip, and then assuming setting a reward-risk of 2:1 will allow a profit. Doesn't work this way, and over time they'll probably win about 33% of the time. A coinflip means pricing having an equal chance of moving a certain distance either way.

To gain an edge, we have to find a situation where price is more likely to move a certain distance one direction than the other. An example would be price having a 50% chance of dropping 50 pips or rising 40 pips. Another example would be a 60% chance of rising or dropping 30 pips. This is one reason it is often suggested to trade with the trend - often price is more likely to move in one direction or the other. It isn't quite this simple though, because random entries would still be marginal at best.

As for your Bloomberg guy, he's wrong - profit can be made with all sorts of risk-reward.
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