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Where is the EDGE in trading? The most important thing in trading!

  • #1
  • First Post: Edited Aug 15, 2011 10:49am Aug 4, 2011 7:04pm | Edited Aug 15, 2011 10:49am
Lets say that we solve all the problems with traders psyhology and money managment. Lets say money managment is perfect and the trader is trading like a robot. Knowing that trading is just a probability game and not having problems accepting losses.

Than to make a profit he still needs to have an edge. Just like casino has an edge and it doesnt care if someone wins a jackpot once in a while.

So where excatly is an edge in trading??

1) Technical analysis doesnt work! All indicators are lagging and produce random results due to the fact that different people see different patterns. Only thing that might work is long term trend following but for that u can use price action. If u can proove me otherwise, than please share your experience/proof. I have yet to see a profitable trader who is pure technician.

2) Also price action doesnt make much sense. It is not a lagging thing like TA indicators but from my experience it is just a 50/50 random distribution. Many systems describe price actions patterns and sound logical but so far i havent seen any that can be said to have concrete edge. They are mostly sold by self-proclaimed gurus who cannot make money themself so they sell systems.

3) Fundamental analysis is ok, but it is too unreliable and difficult to integrate into coherent prediction. There are too many manipulated news and also sometimes price goes in wrong direction despite the fundamentals being correct.


So where excatly is an edge in some trading system? Is there anything that can be said to have definite 60% + edge?

Maybe trading seasonals on futures markets? straddling options before earnings? anything else that has some logic?

Share your ideas
  • #2
  • Aug 4, 2011 8:42pm Aug 4, 2011 8:42pm
A strategy wins in the market for which is was developed. The edge is in using the strategy in the market that suits it, and in not using it in that which doesn't.
  • #3
  • Aug 4, 2011 8:47pm Aug 4, 2011 8:47pm
u think too much

1. trade with trend
2. buy on retrace when trend is up
3. sell on retrace when trend is down

there's your edge
  • #4
  • Aug 4, 2011 8:51pm Aug 4, 2011 8:51pm
A recurring pattern, that is only obvious to a select few (big money players), is an edge. This recurring pattern can definitely be based on TA or PA. But again, it if was obvious to most, it would not be an edge.
  • #5
  • Aug 5, 2011 12:20am Aug 5, 2011 12:20am
Quoting reres
Lets say that we solve all the problems with traders psyhology and money managment. Lets say money managment is perfect and the trader is trading like a robot. Knowing that trading is just a probability game and not having problems accepting losses.

Than to make a profit he still needs to have an edge. Just like casino has an edge and it doesnt care if someone wins a jackpot once in a while.

So where excatly is an edge in trading??

1) Technical analysis doesnt work! All indicators are lagging and produce random results due to the fact that...
Don't know what a 60% + edge should be.
A trading system is comprised of the win/loss ratio and the R:R ratio. You need the right combination of those ratios to have a positive expectancy system.

For example: 49% win/loss with R:R of 1:1 will be a loser long-term. If you have a 51% win/loss with R:R of 1:1 you will have a winner long-term.

I personally like low win/loss ratios with high R:R's. These systems tend to be very robust.
I think the simple reason is that people don't like the long drawdowns and the amount of losers that happen before a winner happens again. That is why they switch systems again and the edge remains.

My systems are based on simple mass behavior traits.
  • #6
  • Aug 5, 2011 1:07am Aug 5, 2011 1:07am
Quoting reres
.... Just like casino has an edge and it doesnt care if someone wins a jackpot once in a while.

So where excatly is an edge in trading??

1) Technical analysis doesnt work! All indicators are lagging and produce random results ....

2) Also price action doesnt make much sense.

3) Fundamental analysis is ok, but it is too unreliable


So where excatly is an edge in some trading system? ....
Well, I believe technical analysis can work. With the three items you listed, it seems you've just about shot down everything that there is, so that would mean that profitable trading isn't possible. But we know it is possible.

You mentioned the casino.... ok, but the casino can not know which spin is going to pay off, they don't know exactly which card is going to turn up next. It's probably the same with trading. But the casino knows that if they play enough games, the expected result is an overall profit... that's their edge.

Technical analysis and price action can definitely work... Go with the trend on your timeframe, buy/sell pullbacks, keep losers small, let winners develop to a point where the target is hit or price action says to exit. At the end of the day, if we take every good setup and follow the plan, we have an expectation of overall profits. That is the edge.
  • #7
  • Aug 5, 2011 1:23am Aug 5, 2011 1:23am
Quoting Custos
Don't know what a 60% + edge should be.
A trading system is comprised of the win/loss ratio and the R:R ratio. You need the right combination of those ratios to have a positive expectancy system.

For example: 49% win/loss with R:R of 1:1 will be a loser long-term. If you have a 51% win/loss with R:R of 1:1 you will have a winner long-term.
That is why they switch systems again and the edge remains.

My systems are based on simple mass behavior traits.
Yes i forgot to mention 1:1 ration in my case. Any strategy that brings profit must have at least 51% edge after W:R ratio is included.



Quoting jmag
A strategy wins in the market for which is was developed. The edge is in using the strategy in the market that suits it, and in not using it in that which doesn't.
I agree and thats correct. Can you gve an example of strategy for some market that has prooved to have an edge?
  • #8
  • Aug 5, 2011 1:32am Aug 5, 2011 1:32am
Quoting Price
You mentioned the casino.... ok, but the casino can not know which spin is going to pay off, they don't know exactly which card is going to turn up next.

Technical analysis and price action can definitely work... Go with the trend on your timeframe, buy/sell pullbacks, keep losers small, let winners develop to a point where the target is hit or price action says to exit. At the end of the day, if we take every good setup and follow the plan, we have an expectation of overall profits. That is the edge.
Actually the casino does know that in a long term they are going to win so they dont care about that specific gambler. It follows from the law of large numbers. They have an edge in the rules of game(roulette for example where there is 0 it gives 2,6% edge). It is the same in trading.

Being consistent is not a problem, following and executing the trading plan is not a problem if only u have the definite edge. Becouse than you know for sure it will pay off in long term.

But having an edge is the most important thing is trading as u cannot do anything without if. Try playing a roulette with the best money managment and see how long u will last

1)market makers have an edge in the way that they manupulate the market but we cannot do that as we are not liquid enough

2)algoritmic trading has an edge in knowing about orders before they hit the floor but we cannot do that

3)company CEO have an edge in knowing data upfront as well but we cannot do that

so besides trend following is there sth else?
  • #9
  • Aug 5, 2011 1:37am Aug 5, 2011 1:37am
EDGE: An Edge is a system or method that gives a higher probability of one outcome over another with positive expectancy.


As far as I'm concerned an Edge, Money Management, and Psychology are all equally important. If you don't have all three you're toast. What good is having an edge if you can't trade it?
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #10
  • Edited 5:39am Aug 5, 2011 4:37am | Edited 5:39am
Getting tired of hearing this from unsuccessful traders.

1) Technical analysis doesn't work! - no YOU can't make it work.

2) Also price action doesn't make much sense. - Doesn't make much sense to YOU.

To others reading this thread - Trading is possible. Making money is possible. It is not the indicators that don't work. Or the Price Action that is wrong.

It is your ability to trade!!! Plain and Simple. It is not your systems fault. It is yours.

Can you handle the drawdowns. Can you really handle seeing thousands wiped off your account! Huh can ya?

Could you still trade a system even if you were told it was long term profitable after 5 losers or 6 or 7?

Is your head still clear enough after a 14% Drawdown to take the next trade and let it run like you should? Or do you close it for a couple of % to get back on track. It is the decisions YOU make that determine your trading results.

Cheers,

EDIT: I am not trying to be confrontational. I am simply saying there is more to trading than trying to find guarentees. It is a risk based business. Risk that a trade will fail. Risk that an edge will fade or change. Risk that you are unable to adjust to trading. If you are currently unsuccessful you need to learn to become a trader not necessarily an analyst of systems and other peoples ideas.
  • #11
  • Aug 5, 2011 5:33am Aug 5, 2011 5:33am
Quoting LasVahGoose
As far as I'm concerned an Edge, Money Management, and Psychology are all equally important. If you don't have all three you're toast. What good is having an edge if you can't trade it?
True, but you can always learn to trade. Thats not a problem. However you cannot learn to have an edge, you need to get it from somewhere.
  • #12
  • Aug 5, 2011 5:43am Aug 5, 2011 5:43am
Quoting Frying
Getting tired of hearing this from unsuccessful traders.


It is your ability to trade!!! Plain and Simple. It is not your systems fault. It is yours.

Can you handle the drawdowns. Can you really handle seeing thousands wiped off your account! Huh can ya?

[color=black][font=Verdana][color=black][font=Verdana]Could you still trade a system even if you were told it was long term...
Hehe. Alot of bitching and no valuble point at the end. You didnt say anything useful except repeat classical money managment rules. Anyone who took some online course can say that. And with money managment alone you CANNOT be profitable. You can only be profitable by having a clear defined highier probablity win to loss ratio edge.

Quote
1) Technical analysis doesn't work! - no YOU can't make it work.

I dont use it at all becouse it just crap. Like i said i have yet to see someone who is profitable on long term from TA alone.

Quote
2) Also price action doesn't make much sense. - Doesn't make much sense to YOU.
It makes perfect sense to me, but again except for following big trends i dont find much use it in. I have yet to see a profitable scalper as well.

If u disagree than proove me wrong but dont keep repeating money managment rules.
  • #13
  • Edited 6:06am Aug 5, 2011 5:49am | Edited 6:06am
If I say I am a profitable scalper does that help you?

If I say I trade using HA candles on a one minute chart with bollinger bands would this help you?

No because you have ruled out all of this already right. You have tried all TA systems with all indicators and none work right?

You will get nowhere simply denying an edge can be found by someone else with indicators you cannot trade with.

My point is - Stop looking for an edge in an indicator.

Edit: For what its worth I believe my style/system/trading method works by trying capturing the constant market fluctations. My losses are small and frequent - my wins bigger. The exact edge is beyond my comprehension but I believe I am trading within the always present market fluctations with no directioanal bias and that I can turn a profit most days. My concern for my edge is will it change with ever increasing algo trading and be lost. Only time will tell. Again I dont know if I can explain it enough to ever be useful but it is there (for now).
  • #14
  • Aug 5, 2011 6:29am Aug 5, 2011 6:29am
Thought this post might help.

I cannot believe the markets today, unbelievable. Thankfully I was on the right side of a trade and benefitted from the 'crash'. But Forex has a nasty sting in its tails. Plan your trade and trade your plan, know your trade and know your plan, manage your risk. Know what you are doing, if it goes wrong then hey. Monitor your trades, if your not performing then something is wrong! stop trading, re-evaluate. If you dont know why your not performing then you shouldnt be trading. It takes commitment and learning, also the desire to get positive results and to know when you are wrong.

Make sure that your quest in Forex is a positive one and that you can learn something from the great traders on here (James16) and heed there advice.

At the end of the day you are responsible for pressing the BUY or SELL button, its not a responsibility to be taken lightly.

Really understand what you are doing, dont just take any other traders word for it, take a moment to understand the reality of a potential trade, accept that you might be wrong but hey you already know your risk...

If you dont know your risk then your account will melt away until you cant trade anymore.

A newbies enthusiasm to trade and be in the market counteracts the due dilligence required to participate in the markets, thats why 95% fail in this business.

I was a newbie once and made mistakes, blew my live account twice (oh the pain). I was not aware of my actions, no real plan (just a thought/hunch), risk management (What does that mean), false dreams of poor trades becoming winners.

Every trader needs to have the light bulb moment!, the thoughts that "this really works for Me". Its a voyage of self discovery people.

Have a look at what some of the great traders are doing on here and see if it fits with your style/personality. Good trading. Steve.
Enter Signature
  • #15
  • Aug 5, 2011 6:34am Aug 5, 2011 6:34am
Quoting Frying
If I say I am a profitable scalper does that help you?

If I say I trade using HA candles on a one minute chart with bollinger bands would this help you?
If you just say it without providing some proof i simply dont beleive you. No offense but ive heard too many of such "sucessfull traders" yet none of them could justify the claims.


Quote
No because you have ruled out all of this already right. You have tried all TA systems with all indicators and none work right?
Wrong. I never ever used TA in my life.It never made sense to me becouse many different traders can see different pattern and when someone sees buy signal other see sell. Only reason why TA can work is if everyone is seeing the same pattern on same time frame but even than big banks come in and disurb everything. A lagging indicators alone simply cannot predict future with any kind of edge.


Quote
The exact edge is beyond my comprehension but I believe I am trading within the always present market fluctations with no directioanal bias and that I can turn a profit most days.

No offense but i bet 99% u are not sucessfull on long term.Your system can work few months but only if u are really lucky. If u dont have a clue on why should your system work than its pure gambling. Every trading system needs to have a logic behind it.
  • #16
  • Aug 5, 2011 7:09am Aug 5, 2011 7:09am
Quoting reres
If you just say it without providing some proof i simply dont beleive you. No offense but ive heard too many of such "sucessfull traders" yet none of them could justify the claims.

Why do you think any trader would justify themselves to you?


[/quote]Wrong. I never ever used TA in my life.It never made sense to me becouse many different traders can see different pattern and when someone sees buy signal other see sell. Only reason why TA can work is if everyone is seeing the same pattern on same time frame but even than big banks come in and disurb everything. A lagging indicators alone simply cannot predict future with any kind of edge. [/quote]


I am predicting nothing. I will leave that to the analysts.

My stop loss does all the work for me. If price moves against me I am stopped out. If it moves in my direction then I have been provided with an opportunity. It is what I do with this opportunity that makes me a trader. I see you are looking for something more cryptic to hang your hat on.


[/quote]No offense but i bet 99% u are not sucessfull on long term.Your system can work few months but only if u are really lucky. If u dont have a clue on why should your system work than its pure gambling. Every trading system needs to have a logic behind it.[/quote]

Success is relative. Mine is not having to go to work tomorrow. Yours?
  • #17
  • Aug 5, 2011 8:04am Aug 5, 2011 8:04am
Hi Reres,

Like you, I have never found any statistical edge as such, in terms of a higher percentage probability of price going x number of pips in one direction before it goes x number of pips in the other direction based on a supposed pattern on the charts. What most people refer to as "patterns", I am more inclined to call "shapes" which are totally arbitrary. So with reference to your question about anything having a 60% edge for example.....I doubt it. I may very well be wrong of course and would be over the moon and ready to eat my words if someone could provide hard proof that such an edge existed.

However, an edge does not need to relate to having a higher percent chance of x happen as opposed to y. There are without a doubt genuine "patterns" in the markets which can be exploited. Certain times of day consistently have higher volatility than other times as just one example. There are many other such patterns which can prove to be an edge depending on how you want to use it. I personally have a very low win rate. I typically lose around 65% of all my trades. So I certainly don't have any edge in terms of winning more often than I lose.

The remaining 35% that I win, can vary in size from 0.1% gain on my account up to infinity. I cut my losses very quickly and let my winners run for as long as the market keeps going in the same general direction. I rigorously back tested my strategy in as many different markets as I could find (not just forex) and over hundreds of years (cumulatively) and it consistently produced the same results over an over again, and those results are positive. It's continued to give me the results I expect during several years of live forward trading.

So my win rate is very low. My draw down periods are long lasting and have gone as much as 40% loss on my account, and yet year on year I am profitable. So I know I have an edge, and that edge has nothing to do with a simple percentage basis of x happening instead of y at any given point. Is my edge simply the fact that my maximum win is larger than my maximum loss and I constantly leave my winners run far longer than I let my losers run?

The subject of "edge" has always fascinated me. There is always talk and claim of high probability set ups and trade entries, and yet no one ever seems to provide actual figures on their "high probability". I think it is often a case of us all misunderstanding what an edge really is. It will be very interesting to see if this thread can develop in to something constructive with people shedding light on what they think an edge is in real day to day trading mechanics.

Let's hope this doesn't descend in to yet another series of arguments about who is right and who is wrong.
  • #18
  • Aug 5, 2011 8:08am Aug 5, 2011 8:08am
Quoting Frying
Why do you think any trader would justify themselves to you?
To proove the point. If u have an argument than in order to support it you need to provide some proof. Otherwise you cannot argue that u have magic strategy when you dont even know why it should work.

Btw, im not asking you to proove anything, i really dont care about that, i care to share the knowledge so someone can maybe get some idea about the profitable systems.


Quote
I am predicting nothing. I will leave that to the analysts.
But how can you trade without prediction?

Quote
My stop loss does all the work for me. If price moves against me I am stopped out. If it moves in my direction then I have been provided with an opportunity.

Thats gambling.

Quote
Success is relative. Mine is not having to go to work tomorrow. Yours?
All of us that make living from trading dont have to go to work. But thats not a sucess we are talking about here.
Sucess in trading means making more profit than loss. Offcourse in the long term. Being in positive balance.
  • #19
  • Aug 5, 2011 8:12am Aug 5, 2011 8:12am
Quoting reres
To proove the point. If u have an argument than in order to support it you need to provide some proof. Otherwise you cannot argue that u have magic strategy when you dont even know why it should work.

Btw, im not asking you to proove anything, i really dont care about that, i care to share the knowledge so someone can maybe get some idea about the profitable systems.



But how can you trade without prediction?



Thats gambling.


All of us that make living from trading dont have to go to work. But thats not a sucess we are talking...
Resres you just need to work harder to make PA work. Everything Frying said is true he gets my vouch.
  • #20
  • Aug 5, 2011 8:16am Aug 5, 2011 8:16am
Quoting flotsom
Hi Reres,

Like you, I have never found any statistical edge as such, in terms of a higher percentage probability of price going x number of pips in one direction before it goes x number of pips in the other direction based on a supposed pattern on the charts.

However, an edge does not need to relate to having a higher percent chance of x happen as opposed to y. There are without a doubt genuine "patterns" in the markets which can be exploited. Certain times of day consistently have higher volatility than other times as just one example. There...
Hi,

thx for your post. I complety agree with you. Random patterns in charts are completly arbitrary.

You said " Certain times of day consistently have higher volatility than other times as just one example."
Yes, this is the kind of edge, but it needs to be exploited in the right way.
I just watched a video of some broker analyist saying that currencies statistically make high of the week and low of the week on mondays and fridays. This can also be used as an edge. Rarely it happens in mid-week.

I forgot to mention currencies arbitrage. In my opinion this can also provide some edge as the banks are using this strategy.

Quoting jag1966
Resres you just need to work harder to make PA work.
And what strategy would that be? James16?
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