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A trader's edge - myth or reality?

  • #61
  • Feb 22, 2010 4:38pm Feb 22, 2010 4:38pm
If I understand correctly, Domino is saying that the only real edge lies with what I would call 'trade management', or exits. It's apparently a similar rationale to that used by Peter Crowns and Joel Rensink, when they talk about 'long tail' trades, i.e. limiting loss, and letting profit run unimpeded. (Domino, please feel welcome to correct me if I've misunderstood).

Given my gaming background, I tend to think of 'expectancy' or 'edge' as being related to gameplay strategy (in a trading context, that would be entries and exits), and 'money management' as being the math behind optimizing or varying bet (position) size while simultaneously preserving one's bankroll (account balance).

Perhaps it's the differing definition of "MM" here that's causing the confusion and disagreement?

[EDIT] Posts #57 onward were added while I was typing this post.
  • #62
  • Feb 22, 2010 4:48pm Feb 22, 2010 4:48pm
Quoting hanover
If I understand correctly, Domino is saying that the only real edge lies with what I would call 'trade management', or exits. It's apparently a similar rationale to that used by Peter Crowns and Joel Rensink, when they talk about 'long tail' trades, i.e. limiting loss, and letting profit run unimpeded. (Domino, please feel welcome to correct me if I've misunderstood).
lol.... hanover i do believe u deserve every one of those 10+ vouches.
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Given my gaming background, I tend to think of 'expectancy' or 'edge' as being related to gameplay strategy (in a trading context, that would be entries and exits), and 'money management' as being the math behind optimizing or varying bet (position) size while simultaneously preserving one's bankroll (account balance).
I have a gaming background as well including the 3 gaming licenses I stole from the casino when i left.. I wanted them as a parting gift...
I was getting at money management and risk control which are pretty much what you just stated.
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Perhaps it's the differing definition of "MM" here that's causing the confusion and disagreement?

[EDIT] Posts #57 onward were added while I was typing this post.
maybe but in the end i think we understand the point. I like that link as well ill have to see if a good discussion is out there on it in this forum.

i believe skewing these distributions is pretty much the heart of trading.
  • #63
  • Feb 22, 2010 4:56pm Feb 22, 2010 4:56pm
Quoting Mindsphere
I guess my point can be boiled down to two things:
1. The 'truths' of the forex world are often taken for granted. What proof do we have that they are not just myths?
2. Price will appear to 'react' to whatever lines and MAs that you put on the chart. For every bounce off a round number, surely there's the same number of bounces off any other number.
1) Good question.

2) Not true. There was a study done that showed a decimal bias. Each pair has a unique "foot print".
  • #64
  • Feb 22, 2010 5:28pm Feb 22, 2010 5:28pm
Domino,

So we have established that your edge isn't MM/Position sizing; the reason for taking the trade (IE. the fundamentals you use to pick your Companies or a chart pattern) is.

I'd say those example screen shots in your post are pretty week. Where is the stop before you have a chance to move to BE? How do you trail the ones that run? I could probably find 20 failed trades (like the ones you gave as examples) for every one runner you find.

Not giving you a hard time for the sake of it. I believe everything that I am saying is very reasonable.

Regards, Leon
Living the adventure in my head.
  • #65
  • Feb 22, 2010 6:42pm Feb 22, 2010 6:42pm
Quoting Leonlorenzo
Domino,

So we have established that your edge isn't MM/Position sizing; the reason for taking the trade (IE. the fundamentals you use to pick your Companies or a chart pattern) is.
MM isnt just position sizing.. why would people say position sizing is the most important aspect to trading among professional traders? money management is more than that.. money management i consider to to be meshed with risk control and risk is money .. and modifying it is money management. now just because im saying that Risk control/MM is the only edge doesnt mean i dont have entrance criteria.. no money management in the world is gonna save u from trying to only short the dow for the past 60 years. the reason im careful in what i choose doesnt have to do with edge either... it has to do with efficiency.. I wanna get paid to hold these positions.. I feel compelled to use that to cover my transaction costs in long term trades.
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I'd say those example screen shots in your post are pretty week. Where is the stop before you have a chance to move to BE? How do you trail the ones that run? I could probably find 20 failed trades (like the ones you gave as examples) for every one runner you find.
its a pin bar stops are at lows.. and yes they are weak as I said i cherry picked the real losers... so if I cherry picked the most awesome majestic long term winners how do you see the breakeven take effect and save ur butt? I can cherry pick some amazing 350:1 running reward:risk trades if u want... but i dont see how that helps the conversation.
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Not giving you a hard time for the sake of it. I believe everything that I am saying is very reasonable.

Regards, Leon

click on that link hanover posted with the long tails.. then I think ull understand what im getting at... it is this sole idea of how to control risk/money at risk that leads to excessive profits.
  • #66
  • Feb 22, 2010 8:19pm Feb 22, 2010 8:19pm
What I have learned is that the biggest edge in trading is patience with winning trades, and impatience with losing trades.
  • #67
  • Feb 23, 2010 4:14pm Feb 23, 2010 4:14pm
Quoting Leonlorenzo
Domino,

So we have established that your edge isn't MM/Position sizing; the reason for taking the trade (IE. the fundamentals you use to pick your Companies or a chart pattern) is.

I'd say those example screen shots in your post are pretty week. Where is the stop before you have a chance to move to BE? How do you trail the ones that run? I could probably find 20 failed trades (like the ones you gave as examples) for every one runner you find.

Not giving you a hard time for the sake of it. I believe everything that I am saying is very reasonable....
here is an example in real time... wat happens from now on is of no matter to me.. i will continue to chase price and let market take me out.
Attached Image (click to enlarge)
Click to Enlarge Name: gettoeven.PNG Size: 33 KB
  • #68
  • Feb 23, 2010 4:51pm Feb 23, 2010 4:51pm
The best article I ever read about edges was actually a few simple pages in a book called Way of the Turtle. You can prove an edge exists with a system's entry by looking at the number of pips the market has moved against and in favour of your position in x number of days since you entered it.

For example, say you were using a 20 day Donchian breakout as an entry signal. How many pips does the market (on average) move in favour of and against that position in say, 60 days? If the ratio is greater than 1 your entry has a statistical edge. If it's greater than about 1.2 it's probably enough to be tradeable. I'm going to do a quick investigation into it and post the results.
  • #69
  • Edited 5:04am Feb 24, 2010 4:48am | Edited 5:04am
Quoting domino
MM isnt just position sizing.. why would people say position sizing is the most important aspect to trading among professional traders? money management is more than that.. money management i consider to to be meshed with risk control and risk is money .. and modifying it is money management. now just because im saying that Risk control/MM is the only edge doesnt mean i dont have entrance criteria.. no money management in the world is gonna save u from trying to only short the dow for the past 60 years. the reason im careful in what i choose doesnt...
Think about what you are saying. The absence of what one thing means that you will not profit in the long term? You've said it yourself that MM used with random entries will not yield profits. The extra ingredient that turns the method from loser to winner is the edge, and according to you that extra ingredient is your entry and exit criteria.

Can anyone else help me lay this to bed? If you read this post carefully then I think you will agree this is checkmate.

Regards, Leon

Edit: I think Hanovers post (#61) may be spot on that the problem/misunderstanding here is a differing definition of MM.
Living the adventure in my head.
  • #70
  • Feb 24, 2010 10:44am Feb 24, 2010 10:44am
Leon I'm pretty sure everyone sees this thread as you describe.......its been pretty worthless and after five pages of arguing over nothing both sides agree you need good money management and good entry/exit strategy to be profitable......surprise!

What a revelation eh?

Happy Trading
  • #71
  • Feb 24, 2010 10:53am Feb 24, 2010 10:53am
I think you have him Leon, I'd like to jump in and say something pertinent, but every-time I try and read this thread my eyes start to glaze over at the sheer tonnage of bollicks which is talked within it. It seems like in this (and a couple of other similar threads) people are trying to dress up averaging in/out as some sort of edge, it isn't.In card games bet sizing can work as past events can determine future probabilities, trading is not a card game.

Any newbs reading this stuff, read Hanover's posts, he lays his arguments out clearly and logically (as opposed to the unreadable hand-waving so prevalent on this thread), moreover, he is right.
Davidee's post is also pretty on the money, it's not rocket science.
The breaking of a wave cannot explain the whole sea.
  • #72
  • Feb 24, 2010 4:43pm Feb 24, 2010 4:43pm
Quoting Leonlorenzo
Think about what you are saying. The absence of what one thing means that you will not profit in the long term? You've said it yourself that MM used with random entries will not yield profits. The extra ingredient that turns the method from loser to winner is the edge, and according to you that extra ingredient is your entry and exit criteria.

Can anyone else help me lay this to bed? If you read this post carefully then I think you will agree this is checkmate....
i think that ur edit is correct I will be willing to state that .. my exits are what will provide an edge but not my entries.. as what i consider MM / risk control .. covers my exits.. and is what creates this long tailed distribution.. Id also maybe willing to admit I have worked hard on our entrances as they provide enough POP just to cover our positions to breakeven safely.. But i still believe that the main edge regardless is my ability with my exits/MM/risk control to skew my distribution of amounts of wins/losses
  • #73
  • Feb 24, 2010 4:45pm Feb 24, 2010 4:45pm
Quoting jpat1023
Leon I'm pretty sure everyone sees this thread as you describe.......its been pretty worthless and after five pages of arguing over nothing both sides agree you need good money management and good entry/exit strategy to be profitable......surprise!

What a revelation eh?

Happy Trading
its actually not worthless as a point of what the exact edge is and where it comes from is helpful for newbs and looking at trading and how to skew a profit/loss distribution is quite helpful and not mentioned often.
  • #74
  • Feb 24, 2010 4:50pm Feb 24, 2010 4:50pm
Quoting Craig
I think you have him Leon, I'd like to jump in and say something pertinent, but every-time I try and read this thread my eyes start to glaze over at the sheer tonnage of bollicks which is talked within it. It seems like in this (and a couple of other similar threads) people are trying to dress up averaging in/out as some sort of edge, it isn't.In card games bet sizing can work as past events can determine future probabilities, trading is not a card game.

Any newbs reading this stuff, read Hanover's posts, he lays his arguments out clearly and...
Im not sure anyone is dressing up average in out... we are talking about skewing profit distributions.. also we made the distinction that this is not a casino dont act like it is .. the games are much different.

if u read davidee's post you find that if you actually read that book he says in a much less indepth way what im saying.
  • #75
  • Feb 24, 2010 5:15pm Feb 24, 2010 5:15pm
Casino's have a most excellent business model. I would think anyone trading would want to be be their own Casino, because the house always wins.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #76
  • Feb 24, 2010 6:02pm Feb 24, 2010 6:02pm
Quoting LasVahGoose
Casino's have a most excellent business model. I would think anyone trading would want to be be their own Casino, because the house always wins.
That would get boring.
  • #77
  • Feb 24, 2010 6:11pm Feb 24, 2010 6:11pm
Quoting LasVahGoose
Casino's have a most excellent business model. I would think anyone trading would want to be be their own Casino, because the house always wins.
sure but trading is not a casino.. it idea is quite opposite .. a casino has a skewed distribution that is offset.. so the bulk income comes from small profits that offset huge rare losses..
  • #78
  • Feb 24, 2010 6:11pm Feb 24, 2010 6:11pm
Quoting Jaquille
That would get boring.
Wasn't expecting that reply.
  • #79
  • Feb 24, 2010 6:12pm Feb 24, 2010 6:12pm
REALITY.
  • #80
  • Feb 24, 2010 6:46pm Feb 24, 2010 6:46pm
Quoting domino
the bulk income comes from small profits that offset huge rare losses..
My demo! Gratified, not only one.
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