What is an edge exactly? - Trading-Lab

newbie · #1 12-04-2007, 09:11 PM

I always hear traders talk about how important having an edge in the markets is. what's exactly an edge? how would you define it, and is it really important make it in trading?

Leth · #2 12-05-2007, 03:54 AM

wow...good question newbie. i can tell you now that your going to get many different answers.
my personal definition of edge is: to have something in place that gives you a better probability of making money in the markets.
your first and foremost edge will be your education (most traders dont educate themselves; this in turn allows traders who do...to take money away from those who don't). eventually, everything else will fall into place and you will be able to define your own personal edge. i might add that edges are more psychological than they are methodical. all this of course is just my perspective, nothing more.

does any of this make sense?..lol

ProTrader · #3 12-05-2007, 01:52 PM

an edge is whatever advantage you have which will increase your chances of succeeding at something.

edge as it relates to markets can be, for example, faster order routing technology that enables you to get into a trade faster than anyone else. Access to information might also be considered an edge. also, an innate ability to read the markets can be considered an edge. does it make sense?

newbie · #4 12-10-2007, 07:53 PM

thanks for clearing that up guys. So let's see if I'm getting this thing right. would chart reading skills be considered an edge?

Soverus Khan · #5 12-10-2007, 10:09 PM

I would also say a mathematical edge needs to be discussed. I am not a big back-tester today, but I learned many things through that process. If a simple indicator can produce results over a period of time that you will trade, that is an edge.

For example. If you plan to swing trade MSFT over a 10 day period and notice the MACD crossover shows favorable reults, backtest it. If the backtest parameters are set right (according to how you plan to trade) and you get a positive win/loss ratio....that is a basic edge. Obviously that is the simple example, but in this case the edge is mathematical.

I see many "Systems" discussion on this board. Each system produces different results and outcomes. All can be "tweaked" to further uncover additional "edges".

Profitability through an "edge".

daytraderB · #6 12-10-2007, 10:18 PM

Quote:

Originally Posted by newbie

thanks for clearing that up guys. So let's see if I'm getting this thing right. would chart reading skills be considered an edge?

I would not consider chart reading skills a real edge. chart reading is more like an art. An edge is something which consistently makes you money day in day out. also, I do not consider any information that is publicly available to be an edge. chart reading is more like a probability game. that is my opinion, of course

Leth · #7 12-11-2007, 08:16 PM

Quote:

Originally Posted by daytraderB

I would not consider chart reading skills a real edge. chart reading is more like an art. An edge is something which consistently makes you money day in day out. also, I do not consider any information that is publicly available to be an edge. chart reading is more like a probability game. that is my opinion, of course

nice post dB...i also liked how you threw in those last six words. i do the same...if i dont forget.

newbie · #8 12-20-2007, 02:22 PM

thanks a lot guys. So I have a feeling having an edge nowadays means having privileged information of some sort (insider information) or access to top-notch technology.

Leth · #9 12-20-2007, 08:28 PM

Quote:

Originally Posted by newbie

thanks a lot guys. So I have a feeling having an edge nowadays means having privileged information of some sort (insider information) or access to top-notch technology.

here are the best edges a trader can possess:

1. cut losses
2. cut losses
3. cut losses
4. trade with the trend
5. manage your risk (bet sizing)
6. repeat

it sounds simple i know...but its not...otherwise everyone would be making money.

Soverus Khan · #10 12-20-2007, 08:41 PM

Quote:

Originally Posted by newbie

thanks a lot guys. So I have a feeling having an edge nowadays means having privileged information of some sort (insider information) or access to top-notch technology.

I would have to disagree. That would suggest the vast majority of successful retail traders who profit consistently is all attributed to "luck".

Edge is a probability in your favor. A probability you can exploit. If you can read the tape or simple price/volume chart and have an "edge", you can be successful. You don't need a quant in your corner or a massive "bells and whistles" system.

Leth is 100% correct in the above post. It may take a while to realize that, but when the lightbulb goes off...you will know it.

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#1 12-04-2007, 09:11 PM
newbie Member Join Date: Oct 2007 Posts: 45	What is an edge exactly? I always hear traders talk about how important having an edge in the markets is. what's exactly an edge? how would you define it, and is it really important make it in trading?

#2 12-05-2007, 03:54 AM
Leth Super Moderator Join Date: Oct 2007 Posts: 621	wow...good question newbie. i can tell you now that your going to get many different answers. my personal definition of edge is: to have something in place that gives you a better probability of making money in the markets. your first and foremost edge will be your education (most traders dont educate themselves; this in turn allows traders who do...to take money away from those who don't). eventually, everything else will fall into place and you will be able to define your own personal edge. i might add that edges are more psychological than they are methodical. all this of course is just my perspective, nothing more. does any of this make sense?..lol __________________ Nothing is more difficult than the art of maneuvering for advantageous positions. - Sun-Tzu Trade with the trend, Ride winners, Cut losers, Keep bets small, Use Stops - Old School

#3 12-05-2007, 01:52 PM
ProTrader Senior Member Join Date: Jun 2007 Posts: 109	an edge is whatever advantage you have which will increase your chances of succeeding at something. edge as it relates to markets can be, for example, faster order routing technology that enables you to get into a trade faster than anyone else. Access to information might also be considered an edge. also, an innate ability to read the markets can be considered an edge. does it make sense?

#4 12-10-2007, 07:53 PM
newbie Member Join Date: Oct 2007 Posts: 45	thanks for clearing that up guys. So let's see if I'm getting this thing right. would chart reading skills be considered an edge?

#5 12-10-2007, 10:09 PM
Soverus Khan Senior Member Join Date: Dec 2007 Posts: 306	I would also say a mathematical edge needs to be discussed. I am not a big back-tester today, but I learned many things through that process. If a simple indicator can produce results over a period of time that you will trade, that is an edge. For example. If you plan to swing trade MSFT over a 10 day period and notice the MACD crossover shows favorable reults, backtest it. If the backtest parameters are set right (according to how you plan to trade) and you get a positive win/loss ratio....that is a basic edge. Obviously that is the simple example, but in this case the edge is mathematical. I see many "Systems" discussion on this board. Each system produces different results and outcomes. All can be "tweaked" to further uncover additional "edges". Profitability through an "edge". Last edited by Soverus Khan : 12-10-2007 at 10:41 PM.

#8 12-20-2007, 02:22 PM
newbie Member Join Date: Oct 2007 Posts: 45	thanks a lot guys. So I have a feeling having an edge nowadays means having privileged information of some sort (insider information) or access to top-notch technology.