Sunday, February 10, 2013

Trading Secrets: What Does an Edge Look Like? (Decisions, Decisions…)

Jack Sparrow writes: What does it mean to have an “edge” in trading… or poker… or any structured competitive endeavor for that matter?

An old rule of thumb is: “If you don’t know what your edge is, you don’t have one.”  That statement is a helpful clarity filter. If you have a winning program, you should be able to articulate what makes you successful (especially in the context of a zero or minus sum game).  The phrase is unhelpful, though, in the way it muddies the waters. The single edge notion is a misnomer. A winning player has a critical mass accumulation of edges that all come together.

Because of this, it’s often a red herring, or a source of misdirection, to try and assign one or two large-scale reasons as to why a trader is profitable. There might be dozens of small-scale reasons, or something to that effect….

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