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Curtis Faith invented the "Edge Ratio" quite recently when he posted the idea and formula in his own company's software forum on Oct 2006. The latest book, "Way of the Turtles" also have a small section to explain this Edge Ratio and its application with examples. P.S: He initially called it the Exclusion Ratio, but it was named as Edge Ratio in his book. More information is available on this thread at the TradingBlox forum. http://www.tradingblox.com/forum/viewtopic.php?t=3310 Here is the formula he used. The most interesting of this ratio is that his initial hypothesis was that on average, a random entry should never have an edge of over 1.0 over a given period of time. His testings has shown evidences that it is such a case. Definitely an interesting indicator to look at and something I would spend more time in. How much of an edge does one need to make a profit? I don't know if I could answer that question. Though in recent threads/posts, there are claims that you can still make money (in theory) with a random entry and a random exit. Dr Van Tharp believed that it is still possible to create a profitable system with a random entry using well defined exit and money management strategies.
Curtis Faith invented the "Edge Ratio" quite recently when he posted the idea and formula in his own company's software forum on Oct 2006. The latest book, "Way of the Turtles" also have a small section to explain this Edge Ratio and its application with examples.
P.S: He initially called it the Exclusion Ratio, but it was named as Edge Ratio in his book.
More information is available on this thread at the TradingBlox forum.
http://www.tradingblox.com/forum/viewtopic.php?t=3310
Here is the formula he used.
The most interesting of this ratio is that his initial hypothesis was that on average, a random entry should never have an edge of over 1.0 over a given period of time. His testings has shown evidences that it is such a case.
Definitely an interesting indicator to look at and something I would spend more time in.
How much of an edge does one need to make a profit? I don't know if I could answer that question.
Though in recent threads/posts, there are claims that you can still make money (in theory) with a random entry and a random exit. Dr Van Tharp believed that it is still possible to create a profitable system with a random entry using well defined exit and money management strategies.
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