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An Edge In The Markets

  • #1
  • First Post: Edited 10:37pm Apr 19, 2011 3:30pm | Edited 10:37pm
So I was reading how traders say that with out an edge in the market, your gambling and the market will sooner or later have your account balance. I don't disagree with that, a casino is a perfect example.

What is an edge? I think we can all agree it's something you have to your advantage over other market participants.

A few people on this forum that do this for a living obviously are winning consistently. Do they have an edge?

One forum member plays daily pin bars on a chart obvious as can be to everyone. He's consistently profitable.

Another forum member plays break-outs with only a short time frame chart. He too is consistently profitable.

We have order flow traders that use news, information available to everyone. They may know the market and its inefficiencies better than most however.

What I'm getting at here is.

I think a lot of edges in the market aren't super secret hidden information or things like that. I think most edges in the market just come from being more experienced and knowledgeable than the rest.


(I want to mention that I don't think most profitable retail traders are more experienced or knowledgeable than the guys at the central banks or Wall Street. I'd say we have an advantage/edge of being minnows in a ocean, where we don't have to look for pools of liquidity to pick up or dump orders. Then again, the big guys produce the order flow that moves the markets and they're concerned with where the liquidity is... So you probably should be too )


Maybe this is obvious to everyone and I'm just thinking out loud, but I feel like too many people get discouraged or look for the holy fail err I mean holy grail their whole trading "careers" instead of just sitting down and spending some good quality time grinding out some knowledge from the vast resources available to us.
  • #2
  • Apr 19, 2011 3:44pm Apr 19, 2011 3:44pm
I completely agree with you on this. I know a trader that can look at a chart and accurately predict what will happen 70%+ of the time without even knowing prices. I know I can't do this yet, and no "holy grail" will teach me this, but I am getting better at being able to spot opportunities as I get more experience.
  • #3
  • Apr 20, 2011 1:31am Apr 20, 2011 1:31am
Quoting Nervousone
So I was reading how traders say that with out an edge in the market, your gambling and the market will sooner or later have your account balance. I don't disagree with that, a casino is a perfect example.

What is an edge? I think we can all agree it's something you have to your advantage over other market participants.

A few people on this forum that do this for a living obviously are winning consistently. Do they have an edge?

One forum member plays daily pin bars on a chart obvious as can be to everyone. He's consistently profitable.

Another...
Several points for you to consider:

 

  1. there are thousands of systems here
  2. how do you know that people really are profitable?
  3. there are different kind of edges

There are so many different systems in here, that it is difficult to grasp which one is actually net profitable and which one is not. So, finding the ones that really are profitable over the long-term is a really difficult endeavour.
It doesn't help that everybody in the forum is claiming that he is making lots of money with the system in the thread they are participating in. Some claims may be correct, but most are just bs. If you apply sound statistical analysis, you will find that most systems either only have a temporary edge or no edge at all (are not net-profitable).
Now to my last point, there are different kind of edges. no edge, temporary edge, permanent edge (not totally permanent but stays an edge over decades).
Most have no edge, some a temporary and only a handful have a permanent edge. Now finding the edges that are permanent and don't just decrease in time is really hard to do. At that point it is important to understand the market and the recurring behavioral patterns by the participants, that will not change until some major shifts happen.

Edges are really no super secret, but finding them among all the unprofitable systems is a really difficult task, if you don't know how or where to look.

  • #4
  • Apr 20, 2011 3:54am Apr 20, 2011 3:54am
What do you think about Sterling? after BOE Minutes.
  • #5
  • Apr 20, 2011 4:27am Apr 20, 2011 4:27am
I used to think that having an edge is having a super secret about the market or some clever indicator or something that only geniuses can figure it out...

Well I realized that an edge can be some simple stupid pattern that you can see on any chart in any time frame! You don't need to complicate things...
But don't be fooled,without patientce to wait for the perfect setup and proper management even the best edge goes down the drain!
IMHO

regards
  • #6
  • Apr 20, 2011 9:16am Apr 20, 2011 9:16am
I tend to wonder many a time why certain individuals who have clearly 'figured out' this business begin sharing info and then retreat because 'they have been asked to keep quiet'

What im finding so far is that probably the biggest assistance to an edge is risk mitigation.

If the markets in general are uncertain, there is only so much one can do:

Getting in and Mitigating risk asap. Then let the market do its thing.

This IMHO is the basis on which to develop/find a good edge.

Mind you im still figuring all this good stuff out haha

But I do have a feeling most people interpret 'edges' in different ways.

What exactly is an edge? An entry? A trade management process? A trading style? All of this combined?....
  • #7
  • Apr 20, 2011 11:54am Apr 20, 2011 11:54am
Quoting Pipalicious
'they have been asked to keep quiet'
Hahaha, so true! Oh no, the NFA is going to silence me next!
  • #8
  • Apr 21, 2011 4:08am Apr 21, 2011 4:08am
Quoting Pipalicious
What im finding so far is that probably the biggest assistance to an edge is risk mitigation.

If the markets in general are uncertain, there is only so much one can do:

Getting in and Mitigating risk asap. Then let the market do its thing.
Well said, Pipalicious.
Mitigating risk in most cases is the simple task of putting in a stop loss and not moving it away further from the price as it 'does its thing'. The sad part is that so many newbies move their stops away from price and add to a losing position when they should be adding to winning positions and moving stops toward the price to minimise risk. Bear in mind that I'm not advocating moving your stop to BE arbitrarily, but moving your stop to a level where you would not want to be long/short anymore.
If you don't risk, you don't ever have to lose.
  • #9
  • Apr 21, 2011 4:35am Apr 21, 2011 4:35am
Quoting bug
Well said, Pipalicious.
Mitigating risk in most cases is the simple task of putting in a stop loss and not moving it away further from the price as it 'does its thing'. The sad part is that so many newbies move their stops away from price and add to a losing position when they should be adding to winning positions and moving stops toward the price to minimise risk. Bear in mind that I'm not advocating moving your stop to BE arbitrarily, but moving your stop to a level where you would not want to be long/short anymore.
I think we are well on the way to reaching the point that most miss.

An edge in the market may actually have little to do with following a "profitable system". The edge may be sufficient self control to allow yourself to profit. That includes not moving stops, not cutting winning trades short and not shutting down trades that have experienced drawdown once they get back to BE, just because you are nervous about how much it retraced against your entry (you put the stop there for a damn reason, right?).

I can see the logical edge in a great many "systems" posted on FF but having the self discipline, money management and trade management skills to turn a profit from them is an entirely different ask.

There is a misnomer that not all retail traders can profit from the market. That there must be losers. We need to understand what a small part we play. There are retail traders with what seem to be massive accounts. Hundreds of thousands of pounds or dollars. Millions in some of the more impressive cases. All the while, retail traders account for just 7-8% of all market activity – these “big” accounts are TINY. Each and every one of us could turn a regular profit and the market would be in no major way either imbalanced or inconvenienced by it.

The vague point I’m making is just because a strategy is in the public domain, just because it seem too simple and just because the claims of others may seem unrealistic, does not mean that it isn't a profitable way to trade. The reality is, though, that so few retail traders will give it the time, the effort and the dedication it needs to go from losing money to making money and that's why the figures always seem so stacked against us. It took nearly a year before I stopped leaking money and began breaking even and then another 3 or 4 months before I began turning regular profit. That was with 60 hour+ weeks, every week. It takes a lot of time and often a lot of lost money.

The final thing i'd like to say about this idea of an "edge" is that it seems to suggest a single, identifiable differentiator that gives you an advantage over everyone else. It just cannot be that way in most cases. My edge is that I learned how to read price action, how to blend the timeframes together, how to understand S&D, S&R and identify levels where price should turn or at least bounce. Bit by bit, I learnt how to trade to a high enough level to profit, with sensible money and trade management. My next step is to escalate my profits to levels that I know are achievable. That is no defined edge in a singular form, just a series of skills that when melded together, provide the so called edge. The edge can be as simple as just hours upon hours of screen time.

Anyone can do it, if they want it badly enough.
  • #10
  • Apr 21, 2011 4:57pm Apr 21, 2011 4:57pm
How did you manage to get this thread featured on FF's Facebook page?
  • #11
  • Apr 22, 2011 1:54am Apr 22, 2011 1:54am
Quoting FibbinArchie
How did you manage to get this thread featured on FF's Facebook page?
No clue. Didn't do anything.
  • #12
  • Apr 22, 2011 3:56am Apr 22, 2011 3:56am
Quoting Trotty
An edge in the market may actually have little to do with following a "profitable system". The edge may be sufficient self control to allow yourself to profit. That includes not moving stops, not cutting winning trades short and not shutting down trades that have experienced drawdown once they get back to BE, just because you are nervous about how much it retraced against your entry (you put the stop there for a damn reason, right?).
Quoting Trotty
The reality is, though, that so few retail traders will give it the time, the effort and the dedication it needs to go from losing money to making money and that's why the figures always seem so stacked against us.
I find myself comparing trading to professional sports more and more every day. Case in point - what you described above is very similar to someone who start a marathon, has a look at the leaderboard halfway through and decides to call it quits. Over and over again, this runner quits halfway through marathons and other long distance races without finishing. It may simply be the case that some of the runners put too much energy into the first half of the race and don't have what it takes to maintain their position in the top 20. However they appear to be the favorites half-way through. The runner who quit half-way through had the chance of finding out whether he could beat the other contenders by finishing the race, but he decided against that, sawing away the branch his was sitting on so to speak. This is the same situation faced by a trader who has entered a position, manages to ride it into positive territory and decides to quit when the position retraces to his arbitrary BE point (stop to BE is a topic that was also discussed in an excellent new thread called Fail Better).

From my personal experience, I would say that it takes a lot of hard work to be able to manage an edge in a way that you don't box it in (F1 race analogy if you know what I mean). In some cases it is simply a matter of taking the time off, going back to demo and taking it easy. In other cases it is a matter of finding another timeframe, another system or tweaking your trade management criteria. In each and every case aspiring traders need to come to a point they no longer interfere with their edge. Of course finding an edge is a precondition for that but I agree with you that there are quite a few of them presented on FF that do the job (the 123 thread and Jankone's M5 systems are good examples).

What separates the trader from the athlete is price history - a trader can always check the charts later and see what would have happened to his position had he not axed it. An athlete can't necessarily know what could have happened. A trader can and thus a trader can take necessary action.

As far as my personal trading is concerned, I'm at the point where I'm taking the time off. I found myself sabotaging my edge way too often. I guess I let success get into my head. But, as Arnie said: "I'll be back!"
If you don't risk, you don't ever have to lose.
  • #13
  • Apr 22, 2011 7:15am Apr 22, 2011 7:15am
Rock solid consistency coupled with an obsession on risk management.

I seriously believe, this is the 'foundation' to any edge out there...or could this be the edge?

I always relate it to boxing and jogging.

Boxing: Protect thyself first and foremost. Only jab/punch when possible and then protect oneself again.

Jogging: Consistency in speed, rythm, time. This gets you further than the average 100ft sprinter who gets knackered after 2 mins...

And also rock solid belief in ones approach whichever it may be

Quoting bug
I find myself comparing trading to professional sports more and more every day. Case in point - what you described above is very similar to someone who start a marathon, has a look at the leaderboard halfway through and decides to call it quits. Over and over again, this runner quits halfway through marathons and other long distance races without finishing. It may simply be the case that some of the runners put too much energy into the first half of the race and don't have what it takes to maintain their position in the top 20. However they appear...
  • #14
  • Apr 22, 2011 7:23am Apr 22, 2011 7:23am
An "edge" doesn't exist in any market.

Theres nothing that can substitute, a clear understanding of what moves the markets and solid risk management skills.
  • #15
  • Apr 22, 2011 7:50am Apr 22, 2011 7:50am
My "edge" is that I freakish amount of patience. Ever notice those traders on financial TV shows that talk real fast as if to make you think they have the thinking capacity of a computer? They would fit the psychological profile that FX market makers need because they would probably act compulsively as traders. In summary, my primary edges are patience and I also have thousands of hours of screen time.
  • #16
  • Apr 22, 2011 8:03am Apr 22, 2011 8:03am
Quoting Troikaone1
My "edge" is that I freakish amount of patience. Ever notice those traders on financial TV shows that talk real fast as if to make you think they have the thinking capacity of a computer? They would fit the psychological profile that FX market makers need because they would probably act compulsively as traders. In summary, my primary edges are patience and I also have thousands of hours of screen time.
I think people don't realize what an edge is: Exploiting an inefficiency in the markets.
  • #17
  • Apr 22, 2011 8:05am Apr 22, 2011 8:05am
Yes i'd agree with that also. From what i've seen so far, the idea of 'edge' is just a concept to anchor some further message or instruction on.

To one of the points about someone wins and someone looses for each fx trade, that's true if you choose to look at it that way, but a key point to remember (at least theoretically) is there are many participants in the real market, people are trading in currency for different reasons, and different time frames.

So it doesn't have to be as glum as it sounds.. as an example if you're scalping into someones 6 month position trade, is it really one winner and one looser? The currency transactions for the purposes of real world trade also would be similar.
  • #18
  • Apr 22, 2011 8:15am Apr 22, 2011 8:15am
The point I am trying to drive home is that there are certain times during the week where either the bulls are dominant or the bears are dominant. Over the years I have learned to wait patiently for those opportunities. When I first started trading FX, I lacked the patience to "wait"......thusly, I entered a lot of bad trades just to feel as if I was doing something.

I am much more certain nowadays that the power plays or "inefficiences" will show up.....it's just a matter of having patience to wait. I consider that an edge over the 99% of traders who lose consistently.
  • #19
  • Apr 22, 2011 9:01am Apr 22, 2011 9:01am
Quoting Custos
I think people don't realize what an edge is: Exploiting an inefficiency in the markets.
Although I agree that can produce an edge I don't think that's the definition of.
  • #20
  • Apr 22, 2011 9:41am Apr 22, 2011 9:41am
Quoting Custos
I think people don't realize what an edge is: Exploiting an inefficiency in the markets.
I respectfully disagree with this, mostly academic, understanding of the markets. I would define edge as the ability to profit from the moves in markets in a consistent fashion without regard to the method that was used to arrive at a profit. If you are a large bank that is focused on arbitrage opportunities then you really do need inefficiencies to capture profits. You could also profit by taking trades based on the inefficient pricing of economic fundamentals as it applies to exchange rates. These are areas where the academic interpretation applies*. All in all, I don't agree that you cannot make money outside of this. There are numerous ways of profiting without having to rely of inefficiencies. For the sake of brevity I will refrain from giving examples here but suffice it to say that I already mentioned two methods in a previous post that, coupled with patience and commonsense money management, already present a potential edge (only potential edge because it needs a skilled trader to capture it).

Jhig is right when he (she?) says that an edge doesn't exist in a market. It cannot. It exists outside of the market. If a trader pockets money from the markets month in, month out then he must have some sort of an edge over those who take the opposite side of his trades. It doesn't have to be an elaborate strategy based on an academic theory. It may be as simple as finding the weakest and the strongest or the most rapidly weakening and most rapidly strengthening currencies and playing them against each other.

*Funny that academics have hijacked this 'inefficient' market view since it was the banks who first thought of it, indeed it was how most if not all of their fx profits were made way back before retail trading and even hedge fund trading ever entered the fx scene.
If you don't risk, you don't ever have to lose.
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