Statistical trading edge
The ability to make money in the markets is what statistical trading edge people want when they get into trading. But what does it mean to have an edge? The answer to this question is not trivial and many people actually get very confused about what it truly means to have an edge and especially how such an edge statistical trading edge to be found.
So what is an edge? These misconceptions about what an edge is usually generate a lot of trouble for traders since there is no clear route to achieve the above mentioned and almost mythological goals.
To be clear, an edge is nothing else than the ability of a trader to have long term results which are statistically above what statistical trading edge have been expected from random chance. A trader has an edge whenever there is a long term tendency to statistical trading edge a profit which could have not been achieved through simple luck with meaningful probability. When we realize that an edge is nothing but a statistical property that describes if a trader can or cannot perform above a random chance strategy it becomes evident that statistical trading edge can only be demonstrated through LONG Statistical trading edge performance as short term results have a much higher innate probability to be the consequence of chance.
Whenever traders focus on the short term there is an inherent focus on immediate results which are largely random and therefore many traders end up wiping accounts as they do not focus on getting an edge but on generating very high short term profits which are just the results of short term luck and are soon after wiped out. How do you get an edge? Well now that we know that an edge is a statistical property derived from long term trading which simply implies that a trader can perform better than chance it becomes clear that in order to get an edge we must focus on gaining an ability to beat a random long term strategy.
Therefore the efforts of any trader who wants an edge — either discretionary or algorithmic — should be to find a way to achieve LONG Statistical trading edge results that beat a random strategy without any focus on profit targets except to make these targets larger than those attainable by chance. When you focus on gaining an edge as a journey to gain statistical long term advantage over the market things get a lot clearer as you now know that you need to perform long term evaluations of either your discretionary skills or algorithmic systems so that you can gain an advantage.
Therefore trading is — not surprisingly — like any other working area where you need to work hard to find things that achieve the results you want. Remember that if you want an edge — the ability to beat a random performer in the long term — you will need to build up your knowledge about statistics and work fully towards this simple but difficult to achieve purpose.
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Zorro uses FXCM price data by default, but its better when you backtest with price data from the very broker you trade with. Using a predicted threshold would statistical trading edge prevent an algorithmic system since you can not backtest it. Either your version is too old or you did not type it right.
This blog is not really a good place for programming support, but the statistical trading edge forum is.