edge init

[NVP]

foorum's been a bit devoid of anything useful recently so I thought I would try and start of a thread that may be beneficial to all.

This thread is all about trading edge's.

Do those of you trading believe you are trading with an edge?

If you think you have an edge how did you come about it? Not asking for details of the edge just how you came about it?

How would you go about finding your own edge? How do you validate an edge?

Maybe some of you believe that you can trade profitably without and edge, you just trade from the gut? If so speak out.

What is an edge anyway? (the simplest way I have heard it described is you are trading with an edge when you have a greater probability of winning over an extended sample). The way I like to think of it is me walking into the Empire Casino in London, pushing all the chinese people out of the way (they love a gamble don't they) to get the the roulette wheel. I blow the dust of my wallet and place £10 on red. The casino has an edge over me, I may win or lose but over an extended sample you would expect them to win as they are trading with an edge.

Can you trade an edge in a discretionary way?

What you sayin?

Sure - I have evolved a way of looking at the market over the years using currency Strengthmeters and Market Correlation

how did I get there ?...........I looked at literally every system and approach I had found and researched regarding Forex trading and went through them one by one again and again - recycling and fine tuning as my knowledge and experiences increased - until I had something that made sence to me ....

(me ..not anyone else !)

is it an edge ?

depends on if I made money that day ...........

N

 

[NVP]

Everyone is talking about HFTs killing spreads but I'm not sure it's the case. When I was looking at this stuff, the only thing that made sense to me was to take a view on the opportunity cost aspect of the pricing mechanism (anyone remember my contango phase lol) in a similar way to how the option traders take a view on the greeks. As far as I could see, that's the only way to viably assess any mean reversion as a change in spread could represent a fundamental shift and your goose would be cooked if you're in a trade there. Imagine you were long BP in an equities pair trade before deep water for example.
In regards to the argument that HFTs eat up all teh opportunities for stat arb, I really don't think that's the case. HFT's are directionally unbiased and are in a out of the market in a flash so why would they wipe out trending opportunities? If anything HFT's feeding off of each other could provide more opportunities imho.
Anyways I'm not really making any significant contribution here as I'm quite sick and I'm just rambling on so I'll go back to lurkyness.

agreed ...........the markets are constantly changing and evolving in all directions......so live with it

these days if you get it right I think you can kill a market a lot more in $$'s than before a lot of the system driven trading was about......

N

 

[scose-no-doubt]

No one said HFT is killing spreads.
The conversation went thus:
HFT is the most effective way to spread trade.
Topic then turned to the longevity of HFT (unrelated to spreads).

HFT stat arb won't wipe out any other arb opportunities.
The point raised was that longer term arb (i.e. not HFT)
is more susceptible to margin risk, or correlation breaking completely.
Hope that clears up the confusion

Sorry I must have mis-read. Not very well today

 

[Liquid validity]

Sorry I must have mis-read. Not very well today

No worries mate

 

[ChocolateDigestive]

Fees are also an issue in that you pay 2x, 3x the fees for a spread trade because you are playing both sides. You have double the bid/offer spread to overcome too.

Interesting game though...

not if you trade exchange traded spreads.:cheesy:

 

[Liquid validity]

Well done for getting the thread going again CD. Mixed feelings on the logic though. For one thing the decreased volatility will lead most to leverage up to make an acceptable return which ultimately puts risk levels back where they were for single instrument trading. Secondly, the adage about the market staying irrational longer than you can stay solvent applies here too: spreads can continue widening for no apparent reason longer than you can bear the loss. But... Ultimately this is now how I trade in my day job and if nothing else, the discipline of knowing that the market is not going to bail you out if you get the stock selection bit wrong has helped me achieve better results: but as Dionysus says, just avoid arbing spreads where your competition is big banks' and hedge funds' supercomputers.

Over the last few pages this point kind of slipped away and got buried.
That is the key to spread trading, not holding on forever thinking it will
come back and the correlation will hold.
Spread trading just eliminates the directional aspect, not the risk...
In that sense its no different to any other type of trade.
Obviously the bonus of not having the directional component is
quite significant to say the least

 

[barjon]

Over the last few pages this point kind of slipped away and got buried.
That is the key to spread trading, not holding on forever thinking it will
come back and the correlation will hold.
Spread trading just eliminates the directional aspect, not the risk...
In that sense its no different to any other type of trade.
Obviously the bonus of not having the directional component is
quite significant to say the least

aye, if you'd gone long ftse/short dow at the beginning of the year you'd be about 200 offside now - which is at least better than the 370 you'd have been offside a couple of months ago.

Nonetheless, despite that cumulative position, it has popped back and forth regularly, so if you wait for extremes before you pounce you've got a good chance.

 

[scose-no-doubt]

free money

 

[SlowlyButSurely]

As a rookie I can't say that I have any edge of my own, but I will say this:

Large financial institutions such as Goldman/JP Morgan etc have an edge in the markets over smaller firms/retail traders due to the significant investments they make into buying/developing software that we could only dream of having access to. They get a clear view of all the money coming in and out of markets, the latest in news and the fastest connection to the exchanges. But I don't think they aim to take money off of retailers, they care more about making money off each other, which is why the constantly spend millions bettering their hardware/software and gaining a slight edge (having their servers inside exchange). If they didn't, they could invest nothing for the next decade and still have superior software.

As a retail trader you will never be able to compete with this, but you can create an edge in your own segment of the market. We all compete for our fair share and therefore must be willing to make some adjustments to better each other. Examples I can think of:

Creating a strategy that allows you to make a profit (perhaps riding the waves on the backs of the big fish).
Accessing a broker that suits your needs and that has competitive prices.
Investing in software that will provide you with all the necessary information you need to trade successfully.

To have a real chance I think I would need at least £50k to cover living costs, important subscriptions (sqwaukbox, TT) as well as getting good rates from a broker. So....anyone want to loan me £50k

 

[R.Charnock]

As a rookie I can't say that I have any edge of my own, but I will say this:

Large financial institutions such as Goldman/JP Morgan etc have an edge in the markets over smaller firms/retail traders due to the significant investments they make into buying/developing software that we could only dream of having access to. They get a clear view of all the money coming in and out of markets, the latest in news and the fastest connection to the exchanges. But I don't think they aim to take money off of retailers, they care more about making money off each other, which is why the constantly spend millions bettering their hardware/software and gaining a slight edge (having their servers inside exchange). If they didn't, they could invest nothing for the next decade and still have superior software.

As a retail trader you will never be able to compete with this, but you can create an edge in your own segment of the market. We all compete for our fair share and therefore must be willing to make some adjustments to better each other. Examples I can think of:

Creating a strategy that allows you to make a profit (perhaps riding the waves on the backs of the big fish).
Accessing a broker that suits your needs and that has competitive prices.
Investing in software that will provide you with all the necessary information you need to trade successfully.

To have a real chance I think I would need at least £50k to cover living costs, important subscriptions (sqwaukbox, TT) as well as getting good rates from a broker. So....anyone want to loan me £50k

No problem, do you want it in GBP or Bank of Bagasloppie virtual currency?

 

[SlowlyButSurely]

No problem, do you want it in GBP or Bank of Bagasloppie virtual currency?

GBP is preferrable please

Send it to:

SBS
162 Regence Elegenacy Suite
Magadengo Place
Lagos
Nigeria

Cheers mate, any future profits will be split with you until i repay you with a 100% return on investment.

 

[BeginnerJoe]

They get a clear view of all the money coming in and out of markets, the latest in news and the fastest connection to the exchanges.

How comes JPM didn't have a clear view of the $9b coming out of their own account and disappearing down the toilet ?

 

[counter_violent]

How comes JPM didn't have a clear view of the $9b coming out of their own account and disappearing down the toilet ?

They probably got distracted with fixing libor.

 

[The Leopard]

How comes JPM didn't have a clear view of the $9b coming out of their own account and disappearing down the toilet ?

Now that's a statement!

 

[SlowlyButSurely]

How comes JPM didn't have a clear view of the $9b coming out of their own account and disappearing down the toilet ?

Show me a system which is right 100% of the time and ill show you a scam. Like I said, the institutions look to make money off of eachother. JP lost 9bn, but someone was on the other side of that trade.

 

[Enzzo]

public internet forums are probably not the best place to look for edge's

I think it is.. but you often need to turn it all over to have it...lol

 

[R.Charnock]

hello. I will say something about spread trading.

There is a cracking post on MM about this kind of thing, it's about language. The point is that the more degrees of freedom you include in the instrument you trade, the more complex the ideas you can express.

the bottom line is this: the more eloquent you become in defining (and trading) opportunities, the less you expose yourself to factors you are exposed to but have no view on.

It is a very crude view that "stocks are going up" or "the euro is going down". Sometimes, sure, there are opportunities where one factor is wholly dominant over the others and you just have to ride out the vol. But there are so many many factors behind whether stocks are going up or the euro is going down that it is very (VERY!) difficult to establish enough consistency in your results to feel like it's worth it to carry on.

Let me put it like this: the more specific your view (trade), the better the feedback you get. Sure, they're expensive to trade, but if anything you get at least your monies worth, and save your psyche a lot of mind**** if you're good.

And your point is?

 

[scose-no-doubt]

And your point is?

I think he's saying knowing wtf you're actually doing is the best edge.

 

[R.Charnock]

I think he's saying knowing wtf you're actually doing is the best edge.

That counts me out, then. No wonder I'm a loosing tarder.

 

[nunrgguy]

I am quite happy to state my edge on the internet as it's very simple and won't affect anything.

It's basically this: I hang around on trading forums. How is this an edge? Simple. Only 1 to 2 percent of traders on forums are losers.