I agree there is no “one-size fits all” edge, but it is a mathematical fact that if there is any edge at all, it would be observable or detectable at a high level.
I completely agree that you need to tailor or system to your personally, but all of these things in themselves can not provide an edge.
They definitely can make it easier for you to operate consistently, so that if you do have an edge, you are able to take advantage of it. But in and of themselves, the provide no mathematical advantage.
I am with you here brother!
If there are any edge to be found, it must be observable in price itself…
This makes me beg the question, where do you observe the edge in price?
I will share where I observe it later today when I get some time to sit down.
I posted this in another thread…but,
There was an experiment done whereby a computer algorithm would print a dot on a grid, and test subjects would observe the sequences, and try to guess where the dot would appear next. The algorithm was far too complex to be rationally deciphered by the conscious mind, but the researchers found that the longer that the test subjects observed the dot sequences, the better they became at predicting where it would appear next, even if they couldn’t really explain why. This is because it wasn’t their egoistic conscious rational process that was responsible for their increasing successes, it was their sub-conscious or intuitive process delivering the goods.
Same thing in trading, except to satisfy the need for an explanation and for the ego to feel some element of control, the trader breaks down the factors behind why a trade happened to work, into easily recognisable component parts, which of course if another less experienced trader were to copy and start applying mechanically in the market place, would see them get absolutely wrecked over the duration.
That for me, is ‘edge’ in it’s most commonly exercised form. i.e. Painstakingly learned intuitive ability.
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This is a really interesting idea…
Thanks for sharing! Do you mind linking to that study or video if you still have it? I would love to get my hands on it so see how they draw the dots!
I also agree that this can happen, and likely happens for most purely discretionary traders who figure out something that works.
That distribution the machine creates would be fascinating, and whatever is happening under the hood that the user’s subconscious is picking up on, would also have been observable in some fashion (not necessarily in the exact same fashion the subconscious sees it) in that distribution.
It was an experiment carried out by Pawel Lewicki, and it wasn’t a dot, it was actually a cross, but I otherwise described the experiment accurately.
Here is an article on it:
although I came across it in the book by John Coates, The Hour Between Dog and Wolf.
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Thank you for posting this!
Roulette fixed odds you know the odds your given,before they spin the ball . The idea behind been a profitable trader ,in theory your winners should be be greater than the losers.That the main reason rookies fail it usually the other way round
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I like the point you are making here but I think it’s a little misleading or I am misunderstanding.
It sounds like making your winners larger than your losers is what you would say the edge is.
The issue with this though is, risk:reward ratios in themselves can not provide an edge. The edge must be in the distribution the risk:reward ratio is applied to, more specifically, the distribution has a clear directional bias or skew built into it.
Take the roulette wheel again. The 0 and 00 spaces create the direction bias in the houses favor. The betting options on the wheel contain many different risk:reward ratios, many of which produce much larger winners than losers.
But at the end of the day, the edge is always with the house, regardless of the risk:reward ratio applied to the game…
Absolutely correct but I think risk reward ratios themselves can be a poison chalice especially for rookies that why I highlighted earlier about the importance of experience as every trade is a different scenario
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There was a study done on the most profitable trading systems with regard to RR and hit rate.
Most profitable was low hit rate, but huge RR.
2nd most profitable was high hit rate, but low RR
And of course, the retail trader is doing neither of these, with our trained 2:1 - 3:1 RR mindset, albeit with many snatching at 0.5:1 RR trades that go on to be winners, whilst leaving and/or not getting the chance to snatch at the 0.5:1 trades that proceed to hit the SL.
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If we move away from profit reward/ ratios and mention all the other clichés regards candlestick formations s ect it’s no wonder it difficult to succeed,when starting your trading “career”
simple question ,0.9863 EU and 4.23 CFD NOKIA ,if you figure out the difference between these 2 ,off you go to where you want all the time.
Hey, @MatDerKater don’t look now, but your recent posts have been exceptionally informative!
New traders here should hook into his profile and have a read… Quality content will be found… Seriously interesting research is being displayed…
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An edge is not necessarly wholly determined by a mathematical fact. Until that is accepted, you’ll be looking ad infinitum. In my case there could be one mathematical input into my profitable strategy, as it’s based on positive probability of being on the right side of a trade.
This would be accepted as an edge, however once my trade is live I have no control over what the market throws at me - and all other traders - which is purely random, often based on whatever news item affects the market sentiment.
And as long as the FX market contains humans disagreeing with one another, this will never end. Best of luck on your quest.
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I appreciate the spirit of your post but I disagree the first part.
An edge can only be a mathematical fact. It’s the engine dictates your portfolio balance over time.
However, I completely agree with the sentiment of your second paragraph. Except, it’s not perfectly random, and that can be observed in every single asset’s price distribution. I do believe it’s directionally but beyond that, it’s anything but normal.
This is what a perfectly normal price distribution would look like:
In this distribution, there is nothing, and I mean absolutely nothing you could do to consistently make a profit.
No amount of risk management, discipline, or strategic betting could move the needle.
Factor in trading costs, and you’re dead on arrival.
Thankfully actual price distributions look very different than this.
Those differences are where people need to look.
I’m sorry. I don’t understand what you mean. What’s ¨red line discretion¨?
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My Ichimoku strategy is based on .a three duck line up on the Daily chart downwards. The red line is based on the same price movement. If the Daily doesn’t quite show a clear buy or sell as it’s close to breaking out of the cloud, but the 8 hr shows that it does, and so does the 4h entry, and the 15m chart is moving in the same direction as the upper charts, then I accept that it meets my very strict criteria.
Hope that makes sense.
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Edges should exploit some market inefficiency. You can better at speed (i.e. digesting important market information faster than other), consistently predict future better than others (fundamental analysis edge) or find some pattern in reaction of traders expressed in certain price behavior (technical analysis). Also you can explore statistical relationships between different assets and use deviations to bet that the relationship will recover. Personally I prefer first approach that’s why I trade scalping strategies with Hotforex.
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What’s the alternative way of thinking about this?