What does having an "edge" actually mean?

[matty2.0]

Having an Edge means you're in jail because you have been convicted of insider trading.

[Sam Collins]

the ability to beat the market consistently over a long period of time, or in other words being a complete trader who understands what makes traders profitable but most importantly can apply that understanding.

Pretty much sums it up for me. Good post nomore

[nunthewiser]

Means .to ME........ having the skills , the knowledge , the experience , the insight, the foresight, the emotional fortitude to beat your fellow man in a game that dont take prisoners ........... You either have it or you dont ........... Reading 475 books , doing 284 courses will not teach you or give you the experience of how the market lives and breathes in a real life situation .

Yes there are many theories that can be taken away , but its being able to put them into place and adapt to a living market that does not follow your rules

I dare say many will disagree, and thats fine...... I am not here to discuss your experiences or great knowledge of what you read.

But that is my definition of having that extra "Edge " that it takes to long term concrete your way.

[Mr J]

I call them "Trader edge" vs "System edge". You can buy "system edge", but you can only acquire "trader edge" through education, experience and may be intuition.

It's a good way to put it, and I think it represents me well. I have no trouble finding good trades, I'm emotionally solid, practise sound money management etc, but I lack the deep market knowledge that comes with years of experience and scrutiny. I feel it's like playing a sport and knowing how to play your position well, but not having a great understanding of the game. A good player can play his position well, but a great player just really knows the game. I guess I'm talking about the next step, rather than defining edge.

[sammy84]

The hard part is....how to do you know when your system has lost its edge or is merely suffering a draw down?

[lukeaye]

Ok maybe what i said didn't come across the way i intended.

Im using a very basic example obviosuly, but say you have an "edge". Your edge is a trend trading strategy, and you come about this edge via expectancy from back testing. Im not saying this is the only way to get an edge, just using it as an example.

So my strategy has worked 63% of the time for the last 30 years. I identify the trend with certain filters, my entries and exits are purely mechanical and have not changed. All of a sudden, i am starting to get an unusual amount of losses. At what point is this no longer an edge? If i sustain more losses then ever previously recorded? Or is it when i step in, in a discretionary manner, and say, this is no longer working?

I agree with your definitions of edges, obviosuly they come in many different forms. Im just trying to establish at what point you can no longer call it an edge? How Nizar could have known that it was no longer an edge? maybe it wasnt as clear cut as we think?

I mean there are very obvious situations where a strategy won't work, im not going to start trying to capture trends on a monthly basis when the market is moving directionless.

You mentioned nomore4's that patterns will start failing more often, why will they? Not trying to be a smart a$$ i just want your views. I think the same patterns will always be tradeble just maybe on different conditions. Say one of your strategy's involves buying silver on the 23 of jan and selling on the 20 of feb. In the past it has worked 70% of the time. This pattern may not occur on this date anymore, maybe it has reverted to "improbable", but the pattern is still valid, just on a different date.

But then we can only identify this after there has been enough sample data again. If patterns fail constanly, then what hope have we? We will probably have some patterns that will never change. When i say never change, i am talking more general patterns. For example, After a particular stock has reached terminal vel in a move, and momentum begins to shift, we will get a sharp move in the opposite direction. That is probably never likely to change.

So maybe it all does come down to application, that really is the hardest part though. At what point should something be applied, or not applied anymore? Experience should play a big part? But what if experience is no longer valid, as patterns change and fail like you say?

[nomore4s]

What Ever
If it puts us at an advantage
Then it is an Edge

An Edge manifests itself working against
Those doing the opposite
at the wrong TIME
For the Wrong TIME

It is about finding a niche ( a real one )
in the game of overbought oversold
and Long term trends

motorway

Motorway, I missed this post earlier for some reason. I have quoted the parts I really like - good post, thanks.

[nomore4s]

Yes there are many theories that can be taken away , but its being able to put them into place and adapt to a living market that does not follow your rules

I agree with this Nun, the market is a funny beast - forever changing but always the same. Learning to adapt to what it throws at you at the right time is certainly a key to trading success.

The hard part is....how to do you know when your system has lost its edge or is merely suffering a draw down?

Well that is the skill of a great trader and a imo part of the edge a truly skillful trader has. Like Motorway said in his post:
Buying Earlier
Buying Later
Selling Earlier
Selling Later

Think of traders like FrankD & TH they always seem to be one step ahead of most other market participants.

[nomore4s]

Lukeaye,

Your post raises some good questions but tbh I can only answer most of it based on my trading methods and application of those methods and those answers might not apply to your trading.

But I will give my views on a few points.

So my strategy has worked 63% of the time for the last 30 years. I identify the trend with certain filters, my entries and exits are purely mechanical and have not changed. All of a sudden, i am starting to get an unusual amount of losses. At what point is this no longer an edge? If i sustain more losses then ever previously recorded? Or is it when i step in, in a discretionary manner, and say, this is no longer working?

I don't trade mechanical systems but as I understand it during your testing you should be able to identify a point where the system steps outside your testing parameters and is therefore no longer valid. I do know there are mech traders that will switch a system off if they feel the market conditions a system was built for are no longer valid - maybe someone with a stronger background in mech trading can answer this question in more depth.

You mentioned nomore4's that patterns will start failing more often, why will they? Not trying to be a smart a$$ i just want your views.

Market conditions play a huge part in how alot of patterns play out. From memory I think you base alot of your trading around buying off support, during current market conditions this is proving to be a very profitable strategy right? Now what happens when market conditions change?

First those setups start breaking support more often and you start getting stopped out for more losers then you were - this affects your profitablity right?
Second your winners stop returning 3-5+ r/r and start returning 1-2 r/r - this also effects your profitability right?

So now your win/loss % has dropped & your ave win rate has decreased - so what happens? Drawdown and if you continue to trade this strategy in the same way during unsuited conditions - death by 1000 cuts.

I think the same patterns will always be tradeble just maybe on different conditions.

Maybe they can be traded on different conditions but the point is your current strategy won't work unless you identify the different conditions and optimise your trading to suit those conditions.

So maybe it all does come down to application, that really is the hardest part though. At what point should something be applied, or not applied anymore? Experience should play a big part? But what if experience is no longer valid, as patterns change and fail like you say?

IMO it does come down to application and yes you are right it is the hardest part.

Experience is always valid imo, but remember no matter how experienced someone is they will never had faced every situation but their experience and skill gained from that experience should help them adapt to the new challenges faster then most other people - which then gives them a slight edge.

To be a good trader you need to be one step ahead of the masses (to a certain degree anyway) or riding on the coat tails of the masses depending on how you want to look at it. Having a true edge should provide this and allow you to be a step ahead constantly(although in reality this is probably never the case).

[Mr J]

Think of traders like FrankD & TH they always seem to be one step ahead of most other market participants.

If you're not ahead, then at best you're competing, if not dead money. I wouldn't trade if I didn't think I was ahead of most participants. When I trade, my aim is to take money from others. To do that, I have to be better and/or faster.

The hard part is....how to do you know when your system has lost its edge or is merely suffering a draw down?

My philosophy is to only trade a strategy that I think exploits inherent behaviour of the market. That may sound like a load of sales talk, but we trade people, not moving averages, indicators etc, regardless of whether we realise this. I may not understand the market very well, but I understand why my strategies work extremely well, and have complete confidence in them.

How Nizar could have known that it was no longer an edge?

Well, that was possibly the weakness in his strategy. I think I would know very quickly, as I judge my strategies by how the market consistently responds to them, not by the results.

Say one of your strategy's involves buying silver on the 23 of jan and selling on the 20 of feb. In the past it has worked 70% of the time. This pattern may not occur on this date anymore, maybe it has reverted to "improbable", but the pattern is still valid, just on a different date.

We're asking for it by making trades for such specific reasons.

So maybe it all does come down to application, that really is the hardest part though. At what point should something be applied, or not applied anymore? Experience should play a big part? But what if experience is no longer valid, as patterns change and fail like you say?

I'm sure some here will say experience, but I believe it comes with understanding our strategy. I'm sure many traders will use anything that seems to work, but a good trader will know why it works, and therefore know why it wouldn't.

[Frank D]

Find something that is proven to work. (method or system)

And then work out how to use it properly.

There’s two school of thoughts:- trade systematically every signal and
let the market do its thing:- probability

Or learn to read the market and optimize the method or system so that
you are using the best of both worlds.

I think you’ll find that most profitable traders will have a proven method
or system, but I feel that where they might be lacking is their own ability
to be able to optimize the method. And that’s the edge.

And I think that simply comes down to experience and time in the markets.

Personally, and I’ve said this numerous times, I’m a good chart reader
and I’ve got an eye for pre-emptive pattern recognition techniques.

After that, let the market do its own thing.

[Wysiwyg]

Market conditions play a huge part in how alot of patterns play out. From memory I think you base alot of your trading around buying off support, during current market conditions this is proving to be a very profitable strategy right? Now what happens when market conditions change?

First those setups start breaking support more often and you start getting stopped out for more losers then you were - this affects your profitablity right?

An example is pennants and flags in an up-trending stock. The breakouts fail or the support lines are breached. Happening over the last week. Obviously the general market sentiment changes and with it most of the prospective set-ups. The bulls have squeezed quite a return out of the markets since Dec/Mar.

[IFocus]

Remember reading about Linda Bradford Raschke in Market Wizards I think and she said "if you don't know what your edge is then you don't have one"

At the time didn't know what my edge was......yep I didn't have one

[Wysiwyg]

Remember reading about Linda Bradford Raschke in Market Wizards I think and she said "if you don't know what your edge is then you don't have one"

At the time didn't know what my edge was......yep I didn't have one

And not having an edge means that any funds are in danger of being transferred to those that do have an edge.

Exempli Gratia; the beginner/novice to the experienced/seasoned.

Securities education seminars being the caudal lure of a Death Adder.

[kam75]

never hold losses.

[Mr J]

Remember reading about Linda Bradford Raschke in Market Wizards I think and she said "if you don't know what your edge is then you don't have one"

Reminds me of the various "if you can't spot the sucker, it's you" quotes.

[nomore4s]

never hold losses.

How does this relate to the original question?

Never holding losses is not an edge and it doesn't even come close to explaining - "What does having an "edge" actually mean?"

How about adding some substance to your post and maybe something that tells us what having an edge means to you instead of the same generic cr@p I can get out of any trading book.

[shortlist]

How does this relate to the original question?

Never holding losses is not an edge and it doesn't even come close to explaining - "What does having an "edge" actually mean?"

How about adding some substance to your post and maybe something that tells us what having an edge means to you instead of the same generic cr@p I can get out of any trading book.

As of yet I have experience only of paper-trading, so know nothing of the feelings involved when real money is moving around, but my limited experience so far has taught me that having an edge is about taking your instincts seriously. If you read and listen a lot, you probably know more than you think you do.

[lukeaye]

As of yet I have experience only of paper-trading, so know nothing of the feelings involved when real money is moving around, but my limited experience so far has taught me that having an edge is about taking your instincts seriously. If you read and listen a lot, you probably know more than you think you do.

Reading and listening has only ever brought me undone. Personally i listen to nobody else, and reading reports just makes me want to sell out of the markets.

With all the information that is available, it makes it hard to filter what is right and wrong. But if you think about it logically, why would anybody want "you" to succeed? The more idiots there are out there listening to misinformation, the more money i make?

Personally i listen to my analysis and some music, and nothing else. If i can't see something on the chart thats gives me a high probability set-up i dont look for other reasons to buy or sell the market.