[janus]

People use the term, 'Trading Edge' in phrases like 'what is your edge?', 'Find your edge' etc.

I haven't come across a precise definition of 'Edge' in the context of Trading.
I would like to hear your definition of 'trading edge', preferably with some examples.

-Janus

[jonbig04]

Edge is just a general term used to describe the fact of positive expectancy, eg. a statistical advantage.

Casinos make large profits because all their games have a built in mathematical edge on their side. Over the long term they will make more money than they lose. Period. If you don't have an edge (long term mathematical advantage) the best you can hope to do is break even. In trading though you won't even get that far because the odds are stacked against you to begin with (commish, slippage, emotions). Without an advantage you will lose money slowly, or all at once.

In the context of trading most people's edge is a system that they have tested an defined rigorously and have found to make them more money than they lose, giving them the advantage. This could be based on price action, canned indicators, fib numbers, phases of the moon, or their astrological sign...as long as it gives them a positive expectancy over the long term (yielding profit), its an edge.

[brownsfan019]

For me, edge as applied to trading is something that separates the winners from the losers. Since I trade futures and they are a zero sum game, there's always winners and losers. Your edge is what puts you into 1 of the 2 groups.

As for what the edge is, as the above post says, it can be anything from indicators, tape reading, support/resistance, money management, risk management, etc etc.

IMO the real edge is HOW a trader uses whatever tools they have at their disposal to make money. It's amazing how you can present the same chart to 10 traders and get 10 different views on how to trade it. That's the beauty of the markets, some will be right, some will be wrong; the edge goes to those that can be right more than they are wrong.

[BlowFish]

And the wacky thing you could be long I could be short yet we could both be winners.....or losers for that matter.

That's the beauty of the markets, some will be right, some will be wrong;

[Sledge]

Originally Posted by jonbig04 »

Edge is just a general term used to describe the fact of positive expectancy, eg. a statistical advantage.

Casinos make large profits because all their games have a built in mathematical edge on their side. Over the long term they will make more money than they lose. Period. If you don't have an edge (long term mathematical advantage) the best you can hope to do is break even. In trading though you won't even get that far because the odds are stacked against you to begin with (commish, slippage, emotions). Without an advantage you will lose money slowly, or all at once.

In the context of trading most people's edge is a system that they have tested an defined rigorously and have found to make them more money than they lose, giving them the advantage. This could be based on price action, canned indicators, fib numbers, phases of the moon, or their astrological sign...as long as it gives them a positive expectancy over the long term (yielding profit), its an edge.

Very well put definition of "Edge!"

[AgeKay]

Originally Posted by jonbig04 »

Edge is just a general term used to describe the fact of positive expectancy, eg. a statistical advantage.

Casinos make large profits because all their games have a built in mathematical edge on their side. Over the long term they will make more money than they lose. Period. If you don't have an edge (long term mathematical advantage) the best you can hope to do is break even. In trading though you won't even get that far because the odds are stacked against you to begin with (commish, slippage, emotions). Without an advantage you will lose money slowly, or all at once.

In the context of trading most people's edge is a system that they have tested an defined rigorously and have found to make them more money than they lose, giving them the advantage. This could be based on price action, canned indicators, fib numbers, phases of the moon, or their astrological sign...as long as it gives them a positive expectancy over the long term (yielding profit), its an edge.

The problem with 'edge' in trading is that you don't know you have one. The casinos know they have an edge because it is set in stone mathematically, but in trading you can only quantify your edge after the fact. You have an edge if you can consistently make money trading, and you obviously don't have one when you're losing money. The problem with that is that there might be more reasons to you losing money then not having an edge, which makes it even harder to quantify your edge. Even if you do think you have an edge, it might change or go away since the market is dynamic while the casinos edge is constant and never goes away.

[Sledge]

Originally Posted by AgeKay »

The problem with 'edge' in trading is that you don't know you have one. The casinos know they have an edge because it is set in stone mathematically, but in trading you can only quantify your edge after the fact. You have an edge if you can consistently make money trading, and you obviously don't have one when you're losing money. The problem with that is that there might be more reasons to you losing money then not having an edge, which makes it even harder to quantify your edge. Even if you do think you have an edge, it might change or go away since the market is dynamic while the casinos edge is constant and never goes away.

I believe you can indeed know that you possess an edge. Casinos know they have an edge and as you said mathmatically, they have their edge- but psychology wise- traders can have their edge. As Casinos know their are only 52 cards in the deck, good traders know that fear and greed of other traders will come into play. If a trader learns to read the other players moves- it most certainly gives you an edge.

Knowing how the masses move, how they tend to think and the overriding emotions of fear and greed in the marketplace- they are a distinct advantage over someone who is unaware of what really drives the markets.

My .02
Aaron

[ammo]

if you pick a few indicators and use them over and over you will notice correlations between the indicator and the markets reaction to it,that doesn't mean you will always know what the market is doing,but occassionally the market will follow your assumption based on that indicator and you will profit from it. One trader who gives a heads up on his trades and why he takes them uses the macd and 5 or 6 times a day he will take a few points out of the market. He uses divergence when the macd is making a mountain above zero and then a second smalller mountain . When the market is trending up and the mountains are going down he feels confident in selling it when the 2,3 and 5 minute chart lines are crossing over,that gives him an edge,the other thing he does is hold steadfast to a 2 or 3 point stop rule,if he gets stopped out and he still likes the trade he will reenter,but he never takes a big loss,i admire his discipline. That doesn't always set up but when it does he takes advantage of that edge