There is no edge
|It’s amazing how much time we all spend looking for new setups when none of them really matter in the end because there is no such thing as a trading edge.
Oh I know I know. You’ve watched thousands of YouTube videos, you’ve listened to hundreds of podcasts, you’ve read multiple books on trading where everyone talks about “edge”. They use fancy words and even fancier math to sift through centuries of data to find the “perfect” strategies. It would be highly amusing if it wasn’t so tragic.
Ask Andrew Lo, famed professor of MIT who certainly knows more math than all of us combined how his vaunted “Behavioral Finance” strategy is doing. (Hint: Your Bank CD at 10 basis per year - yes 0.1% per year - would have done a better job over the past 5 years).
Or maybe you want to consult Cliff Asness who after all went to Wharton and Chicago and has a Phd and worked for Goldman Sachs Asset Management and was so absolutely certain that the value factor was the way to invest and then proceeded to bleed out a decade of underperformance which cost investors billions upon billions of dollars.
These very smart, very talented people. I am not dunking in them. I am just pointing out the futility of believing in the concept of edge.
Edge doesn’t exist. What we call edge is just the process of being at the right place at the right time. It is that perfect moment when your strategy aligns with the current market conditions but it is ALWAYS temporary.
If you were an orange juice trader ( yes just like in Trading Places ) there was one price pattern you could always count on. Prices went down in the winter when Florida flooded the market with their harvest and then rose in the summer when supply dried up.
That worked like clockwork until the mid 80s when Brazil decided to get into the orange juice game.
Because Brazil is in the Southern Hemisphere the supply curve flipped on its head. Suddenly summer OJ prices plummeted and all those carefully constructed seasonal spreads blew up.
So much for your edge.
There are and always will be just two strategies in the market - Continuation and Reversal.
If the market is in continuation mode the stupidest, simplest moving average crossover strategy will make you millions.
If the market is range bound then Bollinger Bands, RSI, Stochastics, MACD - ANYTHING will catch every turn and make you look like a trading genius.
Don’t be fooled. You ain't that smart. You are just lucky.
But that is exactly the point. Our whole job as traders is to just ride that tidal wave of luck while keeping our hubris in check.
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