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Where's The Edge?

  • #1
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  • First Post: Oct 21, 2022 12:37pm Oct 21, 2022 12:37pm
Where's the Edge?
Attached Image (click to enlarge)
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After spending many years lurking on trading forums, looking at hundreds, of systems and strategies, I always have been left wondering, where is the edge?
The system looks great. The chart is a work of art for Pete's sake. The ideas and logic behind the entries and exits sound logical, but the edge is never seen. All too often, it's nowhere to be found.

Some people argue it's in risking less than you stand to make. But simple math easily debunks the idea that a particular risk:reward ratio alone can give you an edge.

Technicians will tell us it's in a special indicator or a special combination of indicators that are built on secret codes. At this point, every indicator has been data-mined to hell and back to find what works best on any particular pair. Unfortunately, as soon as you move into the future, the models break down, and your secret settings no longer work because the market has changed. It always has and it always will.

Some argue it's in the trader. Only the ones who master themselves can master the charts. This also sounds convincing, and in all honesty, is true, but not because the edge is in the trader. The edge can only be exploited by the trader... assuming they have mastered themselves.

The edge has to be somewhere else.

It can't be in risk management...

It can't be in an indicator...

It can't be in the trader...

So where the **** is it!?!

I have some ideas on where I believe it lurks that I will share...

But I am curious, where do YOU think the edge lies?
ri ?skuht
  • #2
  • Quote
  • Oct 21, 2022 2:19pm Oct 21, 2022 2:19pm
Quoting Riskcuit
Where's the Edge?
It can't be in risk management...
It can't be in an indicator...
It can't be in the trader...
So where the **** is it!?! I have some ideas on where I believe it lurks that I will share... But I am curious, where do YOU think the edge lies?

Hi R,

I will leave this over to the maths guys maybe

But when examining a(ny) premise, sometimes it is easiest to explain first what we have discarded (rather than what we cannot yet see).

You state emphatically that it "can't" be in the trader themselves.


Is there a reasoning, or fact, you have utilised to substantiate or maybe just express your statement that it cannot be in the trader.

And, if not in the trader, then this "edge" I imagine, once unearthed, would be available to each & every trader from then on.


(That might get the ball rolling, and it may be my only visit, but good fortunes to you R in your search for the answer.)

edit: clarification

Quoting Riskcuit
Some argue it's in the trader. Only the ones who master themselves can master the charts.
This also sounds convincing, and in all honesty, is true, but not because the edge is in the trader.
The edge can only be exploited by the trader... assuming they have mastered themselves.
The edge has to be somewhere else.

You are suggesting the edge has to be external to the trader I mean.

Why so ?
  • #3
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  • Edited 6:20pm Oct 21, 2022 6:07pm | Edited 6:20pm
Your edge is always you, you can learn a technique, but have you truly mastered it ?

Find your Niche, Style, Specialise .

Attached Image (click to enlarge)
Click to Enlarge Name: I-fear-not-the-man-who-has-practiced.jpg Size: 54 KB


Applies to any Endeavour, even Trading :

Do you have sitting power, patience & perseverance ?

Inserted Video
The Only Limit, is the One that you Set Yourself - Felix Baumgartner
  • #4
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  • Oct 21, 2022 10:03pm Oct 21, 2022 10:03pm
Quoting TimeTells
{quote} Hi R, I will leave this over to the maths guys maybe But when examining a(ny) premise, sometimes it is easiest to explain first what we have discarded (rather than what we cannot yet see). You state emphatically that it "can't" be in the trader themselves. Is there a reasoning, or fact, you have utilised to substantiate or maybe just express your statement that it cannot be in the trader. And, if not in the trader, then this "edge" I imagine, once unearthed, would be available to each & every trader from...
Hey TimeTells!

Thanks for the question! It's the perfect question to ask!

Quoting TimeTells
Is there a reasoning, or fact, you have utilised to substantiate or maybe just express your statement that it cannot be in the trader.
Yes, there is a hard mathematical reason it can not be in the trader alone. Any, not just that, but all edges will be present somewhere else.

Let's look at some distributions to try and illustrate the point.

Below is an image of a perfectly normal price distribution of candle returns.

The x-axis shows us how many pips we would win or loss on any return. And the y-axis shows us the probability of seeing any one of those returns.

Attached Image (click to enlarge)
Click to Enlarge Name: Bell Curve of Pip Outcomes.png Size: 6 KB


If you add up all of the probabilities, they equal 1. This should be the case for any distribution you plan on looking at.

Now, since this distribution is perfectly normal, if you take each value of the x-axis, multiply it by its y-axis value, and sum them all together, you will get 0.

If there is any edge in this distribution (trading one direction or the other), it will be observable in the data using the method above.

There are 2 main points to get with this example:
1. This is extremely important, what we observe in the data does not mean it's the edge in and of itself in the sense that it provides trading rules, it just means there is something in the distribution that can be targeted or exploited. This points to your second statement below:

Quoting TimeTells
And, if not in the trader, then this "edge" I imagine, once unearthed, would be available to each & every trader from then on.
And it's completely true (IMO). Any, and every edge that can exist, can be observed by everyone at all times. The thing is, there are infinite ways to exploit it. And some observable deviations are harder to exploit than others. But at the end of the day, everyone is exploiting the same deviations from normal, they are just doing it in different ways.

2. If the formula above adds up to 0, there is no amount of discipline, money management, or fundamental analysis, or that can extract profits. Some money management techniques can shift around the order and size of wins and losses so you stay in the game longer, but eventually, you will converge towards 0 expected pips for every trade you take.


The TLDR: is the any and every edge (outside of insider trading, and other illegal activities), has to reveal itself in some form in the price distribution...

I am very open to the idea I am wrong though, and if you think this is the case, I am very curious to see how one can try to around point #2?
ri ?skuht
  • #5
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  • Oct 21, 2022 10:04pm Oct 21, 2022 10:04pm
Quoting Shabs19
Your edge is always you, you can learn a technique, but have you truly mastered it ? Find your Niche, Style, Specialise . {image} Applies to any Endeavour, even Trading : Do you have sitting power, patience & perseverance ? https://www.youtube.com/watch?v=S2Dn...-gSA4Q&index=2
I love your spirt and I love Bruce Lee!

But I disagree.

See point #2 in my reply to TimeTells.

If the distribution EV adds up to 0... nothing can save you from inevitable convergence to 0.
ri ?skuht
  • #6
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  • Oct 21, 2022 11:53pm Oct 21, 2022 11:53pm
Quoting Riskcuit
{quote} I love your spirt and I love Bruce Lee! But I disagree. See point #2 in my reply to TimeTells. If the distribution EV adds up to 0... nothing can save you from inevitable convergence to 0.
I disgree with your thinking. Statisitics can be made to show anything.

Reality is there are more failures in retail trading than successes, but that still means there are a minority that are consistently successful.

Therefore to be successful they must have discovered something that the majority haven't. The tools possibly ?

Or Is trading something that can be learnt by anyone or is it a natural ability or personality type ?

I have often compared trading with the game of Poker, you have to be able to read your opponent better than he reads you.
Your Hand is only as good as you play it.

There are many reasons for the high failure rate, there are many threads here on FF that discuss this.
The Only Limit, is the One that you Set Yourself - Felix Baumgartner
  • #7
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  • Oct 22, 2022 4:12am Oct 22, 2022 4:12am
Quoting Shabs19
{quote} I disgree with your thinking. Statisitics can be made to show anything. Reality is there are more failures in retail trading than successes, but that still means there are a minority that are consistently successful. Therefore to be successful they must have discovered something that the majority haven't. The tools possibly ? Or Is trading something that can be learnt by anyone or is it a natural ability or personality type ? I have often compared trading with the game of Poker, you have to be able to read your opponent better than he reads...

I agree trading has a lot of similarities to poker, but there are some significant differences as well. The biggest difference being there is no bluffing in trading, and you are never heads up with one individual so you can't "read" any one person...

I also want to clarify, I am not saying the EV of currency price distributions do add up to 0. I was just showing an example of what one does look like. This would be the case if prices were perfectly normally distributed, which they aren't.

I think there are personality types and things you can learn that increase your likelihood of success, but it's impossible to get around the mathematical fact that, if there is no edge in the distribution, there is no consistent way to make money.

No amount of discipline, risk management, or self-knowledge can beat a truly fair coin. It just can't happen.

This doesn't mean you shouldn't focus on things like discipline or risk management. This is just to say, these things can not give you an edge. They can reduce harm, but not produce alpha.
ri ?skuht
  • #8
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  • Oct 22, 2022 4:25am Oct 22, 2022 4:25am
Quoting Riskcuit
But I am curious, where do YOU think the edge lies?
Quantitative data analysis.
  • #9
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  • Oct 22, 2022 5:15am Oct 22, 2022 5:15am
Quoting Riskcuit
{quote} I agree trading has a lot of similarities to poker, but there are some significant differences as well. The biggest difference being there is no bluffing in trading, and you are never heads up with one individual so you can't "read" any one person..
.
Bluffing happens everyday at market Opens, Professional traders need to fill large orders without spiking the price against their intention to Sell/Buy.
You need to look at any Eur or GBP currency charts to see this.

Quoting Riskcuit
{quote}I also want to clarify, I am not saying the EV of currency price distributions do add up to 0. I was just showing an example of what one does look like. This would be the case if prices were perfectly normally distributed, which they aren't.
.
So if you can find an edge there, find out how to exploit it.

Quoting Riskcuit
{quote}I think there are personality types and things you can learn that increase your likelihood of success, but it's impossible to get around the mathematical fact that, if there is no edge in the distribution, there is no consistent way to make money.
.
I disagree, this is why you put in the screentime to look for that edge. It is not always a mathematical edge, though you have to be proficient with numbers.

Quoting Riskcuit
{quote}No amount of discipline, risk management, or self-knowledge can beat a truly fair coin. It just can't happen. This doesn't mean you shouldn't focus on things like discipline or risk management. This is just to say, these things can not give you an edge. They can reduce harm, but not produce alpha.
Discipline is not good for you if you have no edge, you will keep doing the same thing.
Risk & Money Management without an edge, you will lose capital, only more slowly.

Not sure what you mean by Self Knowledge.

There is no such thing as a fair coin, by that you mean the markets are random ?
The Only Limit, is the One that you Set Yourself - Felix Baumgartner
  • #10
  • Quote
  • Edited 5:54am Oct 22, 2022 5:19am | Edited 5:54am
Quoting gepards
{quote} Quantitative data analysis.
Only trading the markets where you can see the Buyers or Sellers orders just being executed.
The edge becomes the trader's ability to understand if any momentum exists and being able to monetize this movement.

READ THE BOODLY TAPE
It worked 100 years ago and it still works today
Trading thin liquidity at the boundary of the charts
  • #11
  • Quote
  • Oct 22, 2022 5:41am Oct 22, 2022 5:41am
Quoting RickM
{quote} Only trading the markets where you can see the Buyers or Sellers orders just being executed. The edge becomes the trader's ability to understand if any momentum exists and being able to monetize this movement. READ THE BOODLY TAPE
You are on my watch list RickM,
I am watching your every comment with very Sense of urgency, it turned out i have been learning a lot following your post,
Tony
I live in the future
  • #12
  • Quote
  • Oct 22, 2022 6:11am Oct 22, 2022 6:11am
Quoting Riskcuit
{quote} Hey TimeTells! Thanks for the question! It's the perfect question to ask! {quote} Yes, there is a hard mathematical reason it can not be in the trader alone. Any, not just that, but all edges will be present somewhere else. Let's look at some distributions to try and illustrate the point. Below is an image of a perfectly normal price distribution of candle returns. The x-axis shows us how many pips we would win or loss on any return. And the y-axis shows us the probability of seeing any one of those returns. {image} If you add up all of...
Keep this thread rolling for weekend at least we have something to discuss......
It's a rule the more you are close to "null" the closer u approach the "infinity" it's opposite though when you are close to cardinal or ordinal numbers.
Where is the "edge" i really don't know either,
I have been consistently executing " the edge" with minimum risk in smaller timeframe well it's like diffusion of smaller ink in bucket of water that can turn the whole bucket of water coloured. I mean a lower time frame before major storms in the market am sorry am being cryptic... something added up after RickM most comment about " orders"
Where is the Edge i really don't know,
I'll really like to know as well
Regards
I live in the future
  • #13
  • Quote
  • Edited 9:14am Oct 22, 2022 6:14am | Edited 9:14am
Quoting Riskcuit
Hey TimeTells! Thanks for the question! It's the perfect question to ask! {quote} Yes, there is a hard mathematical reason it can not be in the trader alone. Any, not just that, but all edges will be present somewhere else. Let's look at some distributions to try and illustrate the point. Below is an image of a perfectly normal price distribution of candle returns. The x-axis shows us how many pips we would win or loss on any return. And the y-axis shows us the probability of seeing any one of those returns. {image} If you add up all of...
Hi Riskcuit, I asked this same question on another thread. Read the responses to your question tell people don't understand your question.

Except gepards, short and on point.
Quoting gepards
Quantitative data analysis.
Data analyst who work with the past will not get you there. You meant data scientist.

What generate alpha?

Answer - an objectively quantified knowledge about unique repeatable future Forex market event(s) before they happen - identification of anomaly(ies) in price distribution.

How?

Anyone who knows how will not post it on FF.

Do you expect Tom, Dick and Harry to find this edge, let alone understand your question?

Are you aware your question suggest that traders trade with no edge - zero EV?

FF members take your question as a statement that offend and insult them. What response can you expect?

Riskcuit, you should follow up to ask those who propose the "trader is the edge" whatever that means, how does "the trader" generate positive EV. You and readers can make your assessment from their replies.

Question - How do we generate alpha?
Answer - the trader.

(This is why I enjoy reading FF.)

Cheers
Know what you trade
  • #14
  • Quote
  • Oct 22, 2022 7:07am Oct 22, 2022 7:07am
Quoting gepards
{quote}
Quoting RickM
{quote}
Quoting BWilliam
{quote}



Quoting TimeTells
{quote}
You are suggesting the edge has to be external to the trader I mean. Why so ?

Quoting Riskcuit
{quote}
I am very open to the idea I am wrong though, and if you think this is the case, I am very curious to see how one can try to around point #2?


Hi Risk (love your handle, tho shortened it for my typing lol),
If folks can keep themselves in the discussion without any habanero moments of outrageous broadbrush statements, we might finally get somewhere here.


I reckon your #2 has to be discussed, but firstly I was hoping we could make things easier by some eliminations, which may then just leave the "EDGE" sitting right there on the table alone for any NEW trader reading this thread in the future to have their "Ah Ha" moment.


At this point I am sticking with Shabs until his suggestion that the final edge lies in the trader themselves is proven 'unusable' by a process of elimination.

If you can have a quick read read RCuit (I might use that, not Risk which might get mixed up with Rick) at each of the prior quote links I showed above.


To me when I read them, and these are all long term experienced posters, they all (tho referring to it in a slightly different but NOT disparate methodologies)
come back to the very thing Shabs pointed out.

The trader themselves. Each "methodology' is used individually to arrive at a personal conclusion.


So again, to move INTO edge can we get past this "the trader themselves" consideration and what facts or data can we present to eliminate the Trader
from the equation?

(ie so then every & all traders reading this from scratch can say they have arrived at exactly the same conclusion about edge as every other trader)
Attached Image (click to enlarge)
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  • #15
  • Quote
  • Oct 22, 2022 7:10am Oct 22, 2022 7:10am
Not to spoil the stated purpose of this thread, but in reality, there is no such thing as an edge. An edge implies that, if you can discover this one thing about the forex (I assume we're talking about trading the forex, while logged onto Forex Factory), and learn to repeatedly exploit that sigular thing, then you will, over time and within some probability distribution, achieve success. This is not possible. An edge does not exist in the forex. Searching for/believing in an edge (which does not exist) is strictly within the preview of retail forex.

The actual forex market (by which I mean the reason it exists, the financial instruments used in the forex, how those instruments are used, who uses them, when they use them, the corporate strategies that rely on the forex the bankers the corporations rely on, and the overarching authorities that control and manipulate currency valuations, to name a few components of the market) is an ongoing work-in-process of structure development, which is being attended to by highly educated financial professionals who understand the work they are doing (and how their work is influenced by the financial professionals in other markets).

There is a reason professional traders were selling the G$ early today, a reason they bought the G$ later in the morning, and a reason they were selling the $J, even after the $J had been rising all week. They have a deep and abiding knowledge of how to do their jobs. If you'd like to call that an edge, then that is what you need to work on.

Good trading everyone!
  • #16
  • Quote
  • Oct 22, 2022 7:29am Oct 22, 2022 7:29am
Quoting GEfx
. There is a reason professional traders were selling the G$ early today, a reason they bought the G$ later in the morning, and a reason they were selling the $J, even after the $J had been rising all week. They have a deep and abiding knowledge of how to do their jobs. If you'd like to call that an edge, then that is what you need to work on. Good trading everyone!
Wow "moment"
Professionals buying G$ later in the morning.
Professionals selling $J , even after $j had been rising all week
I am curious to know " How do we know"
Someone has the answer to this ......
The "edge" is about to be found
How can we peep " de professionals "
I live in the future
  • #17
  • Quote
  • Oct 22, 2022 7:49am Oct 22, 2022 7:49am
Quoting GEfx
There is a reason professional traders were selling the G$ early today, a reason they bought the G$ later in the morning, and a reason they were selling the $J, even after the $J had been rising all week.
BOJ's Mr Kuroda dislikes steep movements in the yen. But he's silent in delight when it plunged peak to valley 500pips in his prefered direction. Perhaps saved his job or a short-lived reprieve. Does BOJ has a hand in this?
Know what you trade
  • #18
  • Quote
  • Edited 11:14am Oct 22, 2022 8:42am | Edited 11:14am
Quoting BWilliam
{quote} BOJ's Mr Kuroda dislikes steep movements in the yen. But he's silent in delight when it plunged peak to valley 500pips in his prefered direction. Perhaps saved his job or a short-lived reprieve. Does BOJ has a hand in this?
Hi BW!
Re: the G$, we traded it down all London, which was consistent with structure and the narrative out of GB. About half way through NY, the Feds unofficial news leaker, Nick Timiraos from The WSJ, tweeted that the Fed was about to pivot or pause rate increases, which lit a fire under equities, forced yields down, and forced the dollar down. We just followed the new narrative and started buying. As for the yen, that was purely speculative. I assumed that the BOJ would not let the yen go into the weekend above 151. BOJ officials had been warning all week that they were unhappy. We sold as the yen approached 152, with a single position at 151.80, stop at 152.20. We anticipated the first short drop to 151.20. The second move, more like a plunge, was aided by the Timiraos news, but the BOJ took advantage of the opportunity and pushed it further down. I took credit for anticipating the first move, and fully admit to luck on the deep follow through. The BOJ later confirmed their intervention. Everything about today was how the market works. We were in these trades, with minimal at risk, because of a deep understanding of the market.

Incendently, by "we" I mean me and the people I trade with.
  • #19
  • Quote
  • Oct 22, 2022 11:57am Oct 22, 2022 11:57am
Quoting BWilliam
{quote} Answer - an objectively quantified knowledge about unique repeatable future Forex market event(s) before they happen - identification of anomaly(ies) in price distribution.
Bingo! I completely agree with you on this.

Except I wouldn't call them anomalies, but consistent deviations from the graph I posted earlier.
ri ?skuht
  • #20
  • Quote
  • Oct 22, 2022 12:14pm Oct 22, 2022 12:14pm
Quoting GEfx
Not to spoil the stated purpose of this thread, but in reality, there is no such thing as an edge. An edge implies that, if you can discover this one thing about the forex (I assume we're talking about trading the forex, while logged onto Forex Factory), and learn to repeatedly exploit that sigular thing, then you will, over time and within some probability distribution, achieve success. This is not possible. An edge does not exist in the forex. Searching for/believing in an edge (which does not exist) is strictly within the preview of retail forex....
This sounds a bit silly to me but I do enjoy the spirit of the post!

The idea that there is no edge? I don't even think you believe that as your next post outlines it quite well.

Quoting GEfx
I took credit for anticipating the first move, and fully admit to luck on the deep follow through.
This is an edge right here. The idea or force behind the "deep follow through"...

Deep follow throughs or increases in volatility always happen in markets. Always have, and always will. It's completely measurable and obvious in any price distribution. And they typically only get larger and larger over time.

As they say, the spectacles in the coliseum only get larger.
ri ?skuht
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