The question of an edge - Traders Hideout | futures io social day trading
futures io futures trading


The question of an edge
Updated: Views / Replies:12,505 / 40
Created: by Grantx Attachments:2

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 100,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 2  
 
Thread Tools Search this Thread
 

The question of an edge

  #21 (permalink)
Geelong Victoria
 
 
Posts: 113 since Jan 2015
Thanks: 45 given, 90 received


geth03 View Post
i think i can call myself a full discretionary trader, which means the only tools i use for my trading is the Depth&Sales in futures trading and MarketMakerBox and Time&Sales in stocks trading. i watch the play between buyers and sellers and make my final decision on which side has control. Eg in a range we see buyer aggresiveness from support to resistance. then the price comes back to support bc buyers are loading up and dont want a breakout at this moment and sellers are not quite aggressive, price chopps back to support. finally buyers become more aggressive and breakout of the range. how do you want to backtest this? you can only gain this knowledge by watching the time&sales for monthes. how do you want to backtest fake orders on the order book. offer is pumping up and the same guy loading on the other side. no way to backtest it. you see it you join the party. if it goes in my favor i make 5 times more than it goes against me. there is no way you can backtest these things. i use highlowclose bar charts only to identify interesting price levels and thats it. and. to identify the market structure.


Sent from my iPhone using futures.io

In a nutshell, the art of successful trading is to define who is in charge and to then jump on board. as long as your winnings exceed your losses you survive. You don't need an arsenal of tools, just your eyes and your brain, so many people are baffled by the bullsh-t.

Cheers cJohn

"Simplicity is the ultimate sophistication" Leonardo Da Vinci. Now there was a man who knew a thing or two about creating masterpieces.

Reply With Quote
 
  #22 (permalink)
Legendary Market Wizard
Switzerland
 
Trading Experience: Intermediate
Platform: Investor/RT
Broker/Data: IB / DTN
Favorite Futures: Futures
 
Posts: 4,647 since Feb 2012
Thanks: 4,605 given, 9,451 received

To refine my previous post of today:

There are systems that work quite well over some time.
Reaching the "end of consumption date" this system might no longer work.
Really?
Yes - really - POINT.
Depending on market conditions - some back and forth tested systems are
going the normal way of life: DOWN

Just be aware of this and test some other genius (bar) systems that might
have success.
Never be sure to have the holy grail for more than 1 year

The only thing that can make us optimistic:
The market will be here tomorrow again

GFIs1

If you are not sure - then watch @ratfink threads here who is telling you the truth
about finding the edge and about exquisite results - sometimes in sweat. Cheers!

Follow me on Twitter Visit my futures io Trade Journal Reply With Quote
The following 3 users say Thank You to GFIs1 for this post:
 
  #23 (permalink)
Market Wizard
Birmingham UK
 
Trading Experience: Intermediate
Platform: NinjaTrader
Broker/Data: TST/Rithmic
Favorite Futures: YM/Gold
 
ratfink's Avatar
 
Posts: 3,650 since Dec 2012
Thanks: 17,356 given, 8,341 received



GFIs1 View Post
... exquisite results - sometimes in sweat. Cheers!

It's been a long time since my exquisite Sprint results, now much more like exquisite beer and sweaty results...

Cheers

Travel Well
Visit my futures io Trade Journal Reply With Quote
The following user says Thank You to ratfink for this post:
 
  #24 (permalink)
North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

Let me add a different perspective to your question, first a hard "edge" would be something that is mathematically provable. Science is based on the idea that events are repeatable: it relies on a self-consistency assumption. If for whatever reason, things are different where I sit then where you sit, science itself would break down or more specifically, the scientific method would not yield useful results. A corollary to this idea that can be found in statistics is the normal distribution which many statistical methods assume or rely on to produce meaningful results. However, markets are non stationary which simply means that there are periods of both trend and range. Truthfully, markets are chaotic in nature. A different kind of mathematics would be required to elucidate any deeper truths.

As you eluded too, there are different types of edges in the market. If my trading cost are less then yours, I have a relative edge. That translates to my making more then you --even if we were to take the exact same trades: in some cases, that could even translate to my ability to consistently make money while you could be losing money.

What most traders talk about when they talk about having an edge though is what we will call an empirical edge. It is basically the sort of reasoning where we infer future results from past results. The same reasoning is utilized by both discretionary and system traders: however, their are unique differences that are relevant. The discretionary trader may assume markets to be random, the default belief system. However, as a result positive experiences eventually the trader eventually revises their belief system based on their performance. This forming a belief system based on the evidence is known as a statistical or empirical belief system. However, due to the non stationary nature of the market, empirical results are at best a soft edge. They are not conclusive: it is not the sort of mathematical edge that a casino has. Both discretionary traders and trading systems use empirical reasoning to form their basis. Discretionary traders primarily have formed their belief system on unseen data whereas systems are primarily developed historical data and verified on unseen data. Discretionary traders will probably be using more advanced or complex models of reality. A more complex model of reality is more likely to be real but also the performance of that model is less well understood. This means more variance and there are many unknowns for the discretionary trader (style drift, execution problems, market shifts). Systems rely on highly simplified models of reality that are less likely to be real. However, the parameters are well understood.

In other words, a discretionary trader will have difficulty producing super normal returns because they do not know how precise their predictions are. A system trader will have difficulty producing super normal returns because while they know how much they can leverage their system: the cost of that knowledge is having a less realistic model.

Expectancy is merely a descriptive statistic. If you are in a drawdown, at least from the highs, all the statistics will look bad. If you extrapolate anything from that it will show that you will continue to lose but if you are up then all the statistics will look good and any extrapolation will probably be more rosy then reality.

There are different ways of thinking about trading that are less discussed but may be illustrative. These ways of thinking about trading might be best described as "cognitive price discovery" and "intentionality". I suspect that elite level discretionary traders do not think in singular terms of having an edge, that is in terms of repeatable events, but rather incorporate also the sentiment of the other traders. Cognitive price discovery can be thought of as a real-time phenomena. As a hypothetical example, a trader may short a bunch of contracts at price lows, if new lows aren't made then the trader may infer from that that there is a large buyer at price lows and thus becomes a buyer him or herself.

As for say a system traders edge, we would need to differentiate the intentional conscious process that the system developer utilizes apart from the rules driven systems themselves. We can imagine a system trader, like a fiendish demon, working behind the scenes developing new systems, tweaking existing systems, retiring systems, etc. However, if this activity is responsible for the performance of the systems then we the cause of the profits is not the rules but rather the conscious decision making of the developer, the cognitive processes. In order to see the true rules driven performance, we would need to freeze the development and run the systems over a very long time such as 10 to 30 years. If the systems frozen 10-15 years back and ran 10-15 years in the future does not show an edge or as significant of an edge then we can infer that a system developers profits aren't coming exclusively (or perhaps even primarily) from the rules driven trades but rather from the cognitive processes that the developer employs, consciousness or in other words intentionality or cognitive processes.


Last edited by tpredictor; July 15th, 2017 at 04:02 PM.
Reply With Quote
 
  #25 (permalink)
Legendary Guesser
Reading UK
 
Trading Experience: None
Platform: Prorealtime
Broker/Data: Interactive Brokers
Favorite Futures: My 3 boys
 
Grantx's Avatar
 
Posts: 1,582 since Oct 2016
Thanks: 2,182 given, 4,092 received

@kevinkdog Ive had a brief look at your AMA thread and you are primarily focused on algo systems. I don’t know much about your world so correct me if Im wrong but that requires a completely different mindset to day trading? You will have a variety of different strategies simultaneously working across multiple timeframes and instruments? You closely monitor expectancy and adjust your ‘worker bees’ when one underperforms? Expectancy is the single most important thing to you because it is the only way to gauge the performance across tens or hundreds of concurrently running algos?

I see now the importance of expectancy however as a day trader I just cannot accept that expectancy is at the top of my hierarchy of needs. Day trading requires that we constantly monitor ourselves and every possible direct and indirect variable that could affect our decision making ability. The food we eat, how much sleep we have had, what mood we are in, money mgmt, FOMO prevention etc..all contribute to how effectively we can execute our trade plan at go time. You can be amazing one day and the next day it’s all gone to shit because one of the parts where discipline slipped spiralled out of control causing a chain reaction. Think Jesse Livermore,

A day trader must monitor all aspects of themselves at all times just the same way that you monitor your algos expectancy at all times. In my world there is not one thing whos importance overrides all else. Expectancy will tell me how well Ive done to date but tomorrow is another day and if Im disciplined in all areas of my approach then I can maintain a positive expectancy.

--------------------------------------------------------------------------------------------------------------
For the benefit of anyone reading this, who like me was clueless to this very important metric (but thankfully am now fully aware of it), I have been doing some reading and the following is a basic intro on what you need to do. You should try and get as big a sample size as possible, a few hundred trades minimum if you can.

You only need 4 pieces of information:
1. number of winning trades
2. number of losing trades
3. amount of money won
4. Amount of money lost.

From this data we can calculate the following:

Net profit = amount of money won - amount of money lost
Win rate = number of winning trades / total number of trades
Lose rate = 1 - win rate
Average winner = amount of money won / total number of winners
Average loser = amount of money lost / total number of losers
Average reward / risk = average winner / average loser
Expectancy per trade = win rate x average winner – lose rate x average loser
Or, alternatively, expectancy per trade = net profit / total # trades
Expectancy per month (profit forecast) = expectancy per trade x average # trades per month
Expectancy per amount of money risked = win rate x (average reward / risk + 1) – 1
Or, alternatively, expectancy per amount of money risked = net profit / average loser / total # trades

Here is an example:
Lets assume we have been trading for 6 months and made a total of 540 trades. 297 of them were profitable and 243 were not, with $35.640,00 profit coming from the winning trades and $19.440,00 loss stemming from the losing trades. Lets make the calculations:


Net profit = $35.640,00 - $19.440,00 = $16.200,00
Win rate = 297 / 540 = 55%
Lose rate = 1 - 55% = 45%
Average winner = $35.640,00 / 297 = $120,00
Average loser = $19.440,00 / 243 = $80,00
Average reward / risk = $120,00 / $80,00 = 1,5
Expectancy per trade = 55% x $120,00 – 45% x $80,00 = $30,00
Or, alternatively, expectancy per trade = $16.200,00 / 540 = $30,00
In our example the expectancy per trade is $30,00. This means, on average (over many trades), each trade will contribute $30,00 to the overall P&L.

Expectancy per month = $30,00 x 540 / 6 = $2.700,00
In our example we can forecast a monthly profit of $2.700,00 based on prior performance.
Expectancy per $ 0.61% risked = 55% x (1,5 + 1) – 1 = 38%
Or, alternatively, expectancy per $ 0.61% risked = $16.200,00 / $80,00 / 540 = 0,38

Credit to JasperForex on tradingView for allowing me to reproduce the breakdown above.

Visit my futures io Trade Journal Reply With Quote
The following 2 users say Thank You to Grantx for this post:
 
  #26 (permalink)
Market Wizard
Birmingham UK
 
Trading Experience: Intermediate
Platform: NinjaTrader
Broker/Data: TST/Rithmic
Favorite Futures: YM/Gold
 
ratfink's Avatar
 
Posts: 3,650 since Dec 2012
Thanks: 17,356 given, 8,341 received


Grantx View Post
A day trader must monitor all aspects of themselves at all times; just the same way that you monitor your algorithm's expectancy at all times. In my world there is not one thing who's importance overrides all else. Expectancy will tell me how well I've done to date, but tomorrow is another day. If I'm disciplined in all areas of my approach then I can maintain a positive expectancy.

Numero Uno.

Great post, this is a good discussion for all of us.

For the record a good while back I did 2100% in 3 months with 177 discretionary five minute binary trades with a win rate of 67%, so I figure the expectancy was decent, maybe even 'super normal'. Then I blew it up because I went all experimental and failed completely on Numero Uno.

The two cannot be separated and I am still trying to recover from the divorce. Expectancy on its own means nothing if you are stupid with leverage or cannot control the inner forces.

Cheers

Travel Well
Visit my futures io Trade Journal Reply With Quote
The following 3 users say Thank You to ratfink for this post:
 
  #27 (permalink)
Market Wizard
Gits (Hooglede) Belgium
 
Trading Experience: Master
Platform: NinjaTrader, Proprietary,
Broker/Data: Ninjabrokerage/IQfeed + Synthetic datafeed
Favorite Futures: 6A, 6B, 6C, 6E, 6J, 6S, ES, NQ, YM, AEX, CL, NG, ZB, ZN, ZC, ZS, GC
 
rleplae's Avatar
 
Posts: 2,955 since Sep 2013
Thanks: 2,404 given, 5,487 received

Interesting to see, at the same time

1) how 'hot' this topic is
2) how difficult it is to 'articulate' what is the edge...

I think this is exactly what separates retail from professional world...
it would be worth a seminar and for sure more than a few hours can
be filled on this topic...

Follow me on Twitter Visit my Facebook Visit my futures io Trade Journal Reply With Quote
The following user says Thank You to rleplae for this post:
 
  #28 (permalink)
Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,965 since Dec 2013
Thanks: 2,408 given, 5,300 received


rleplae View Post
Interesting to see, at the same time

1) how 'hot' this topic is
2) how difficult it is to 'articulate' what is the edge...

I think this is exactly what separates retail from professional world...
it would be worth a seminar and for sure more than a few hours can
be filled on this topic...

I agree. Well said.
Part of the issue is that edge and expectancy mean different things to different people, and in many cases aren't transferable.
To HFT it might be speed.
To Kevin it may be systems with high expectancy.
To a market maker or a prop customer desk it could be flow.
To somebody else it may be knowledge or information.
To yet somebody else fundamental analysis.
The list is endless.
The bottom line though is that unless you have a reason to believe you will make money, why would you do it?
That reason whatever it is, is your edge, however you define it.
Expanding on what somebody said earlier, if you dont know what your edge is, chances are you don't have one, which probably means you won't be trading long - at least not profitably.

Reply With Quote
The following 6 users say Thank You to SMCJB for this post:
 
  #29 (permalink)
North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

And, it should be noted that for many capital itself is an edge. Capital to deploy different types of strategies and even capital to trade in the first place. In fact, if we accept that capital is required to trade, we can logically see that no trader has ever made money exclusively from trading. A trader might say, for example, he doubled his 5k account. But where did the original 5k come from? Because capital is required to trade, we can see that at least a significant edge for all traders must have been acquiring some capital to start with. Basically, no one has ever made anything from trading ability alone: capital was required.

Reply With Quote
 
  #30 (permalink)
Geelong Victoria
 
 
Posts: 113 since Jan 2015
Thanks: 45 given, 90 received



tpredictor View Post
Let me add a different perspective to your question, first a hard "edge" would be something that is mathematically provable. Science is based on the idea that events are repeatable: it relies on a self-consistency assumption. If for whatever reason, things are different where I sit then where you sit, science itself would break down or more specifically, the scientific method would not yield useful results. A corollary to this idea that can be found in statistics is the normal distribution which many statistical methods assume or rely on to produce meaningful results. However, markets are non stationary which simply means that there are periods of both trend and range. Truthfully, markets are chaotic in nature. A different kind of mathematics would be required to elucidate any deeper truths.

As you eluded too, there are different types of edges in the market. If my trading cost are less then yours, I have a relative edge. That translates to my making more then you --even if we were to take the exact same trades: in some cases, that could even translate to my ability to consistently make money while you could be losing money.

What most traders talk about when they talk about having an edge though is what we will call an empirical edge. It is basically the sort of reasoning where we infer future results from past results. The same reasoning is utilized by both discretionary and system traders: however, their are unique differences that are relevant. The discretionary trader may assume markets to be random, the default belief system. However, as a result positive experiences eventually the trader eventually revises their belief system based on their performance. This forming a belief system based on the evidence is known as a statistical or empirical belief system. However, due to the non stationary nature of the market, empirical results are at best a soft edge. They are not conclusive: it is not the sort of mathematical edge that a casino has. Both discretionary traders and trading systems use empirical reasoning to form their basis. Discretionary traders primarily have formed their belief system on unseen data whereas systems are primarily developed historical data and verified on unseen data. Discretionary traders will probably be using more advanced or complex models of reality. A more complex model of reality is more likely to be real but also the performance of that model is less well understood. This means more variance and there are many unknowns for the discretionary trader (style drift, execution problems, market shifts). Systems rely on highly simplified models of reality that are less likely to be real. However, the parameters are well understood.

In other words, a discretionary trader will have difficulty producing super normal returns because they do not know how precise their predictions are. A system trader will have difficulty producing super normal returns because while they know how much they can leverage their system: the cost of that knowledge is having a less realistic model.

Expectancy is merely a descriptive statistic. If you are in a drawdown, at least from the highs, all the statistics will look bad. If you extrapolate anything from that it will show that you will continue to lose but if you are up then all the statistics will look good and any extrapolation will probably be more rosy then reality.

There are different ways of thinking about trading that are less discussed but may be illustrative. These ways of thinking about trading might be best described as "cognitive price discovery" and "intentionality". I suspect that elite level discretionary traders do not think in singular terms of having an edge, that is in terms of repeatable events, but rather incorporate also the sentiment of the other traders. Cognitive price discovery can be thought of as a real-time phenomena. As a hypothetical example, a trader may short a bunch of contracts at price lows, if new lows aren't made then the trader may infer from that that there is a large buyer at price lows and thus becomes a buyer him or herself.

As for say a system traders edge, we would need to differentiate the intentional conscious process that the system developer utilizes apart from the rules driven systems themselves. We can imagine a system trader, like a fiendish demon, working behind the scenes developing new systems, tweaking existing systems, retiring systems, etc. However, if this activity is responsible for the performance of the systems then we the cause of the profits is not the rules but rather the conscious decision making of the developer, the cognitive processes. In order to see the true rules driven performance, we would need to freeze the development and run the systems over a very long time such as 10 to 30 years. If the systems frozen 10-15 years back and ran 10-15 years in the future does not show an edge or as significant of an edge then we can infer that a system developers profits aren't coming exclusively (or perhaps even primarily) from the rules driven trades but rather from the cognitive processes that the developer employs, consciousness or in other words intentionality or cognitive processes.

What a great post!

You have summed up the core challenges in successful trading. The markets are constantly evolving and therefore constant adaption is required, here lies the problem with the rigid rules usually found in Charting and TA (Systems Trading). Price doesn't always reflect the true nature of the market, so where is the reliable edge in Price Analysis?

We all trade a system even if it is as chaotic as flipping a coin. If you are constantly adapting your system (hourly/daily because this is how quickly the core market dynamic changes) to suit market dynamics then you are a Discretionary Trade.r As a successful Discretionary Trader my observations are quantified thru spreadsheet formulas and analysis, so there is a technical aspect but that takes second place to getting and staying as close to the market leading edge as possible.

The nature of the market itself, not the system must dictate what we do.

Cheers John

Reply With Quote
The following 3 users say Thank You to Johno1 for this post:

Reply



futures io > > > The question of an edge

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)
 

futures io is celebrating 10-years w/ over $18,000 in prizes!

Right now
 

$1,000 in Amazon Gift Cards being given away right now from GFF Brokers

Right now
 

$250 Amazon Gift Cards with our "Thanks Contest" challenge!

Right now
 

Show us your trading desks and win over $5,000 in prizes w/Jigsaw Trading

August
 

Webinar: Suri Duddella (TBA)

Elite only
 

Webinar: Richard Bailey (TBA)

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Edge steve2222 Terms (Glossary) 0 July 28th, 2016 03:15 AM
trading from the edge or not forgiven The Elite Circle 1 May 22nd, 2016 04:38 PM
RSI Edge? gever17 NinjaTrader 5 March 23rd, 2011 05:48 PM
Finding your edge! George Psychology and Money Management 2 September 22nd, 2010 06:49 PM
Trading with an edge - what does it mean to you ? trendisyourfriend Psychology and Money Management 22 September 14th, 2010 06:39 AM


All times are GMT -4. The time now is 01:35 AM. (this page content is cached, log in for real-time version)

Copyright © 2019 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts