What is considered an edge? - page 3
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And any strategy (or EA) need to be profitable first before we can consider its edge over others (which profitable too). Or it's not even worth to talk about any edge if the EA is not profitable in the 1st place.
My EA is profitable so far, but it trade less frequent. Means if you're an IB and expecting frequent fee pre trade, then more trade-frequent strategy/EA will have more edge than mine. But if you just want to gain and being calm, then my EA/strategy may have an edge as it's more suitable.
Or you may have an EA/strategy that has a very low DD, then you can use it on suitable prop firm. That's also an edge, based on your need.
But once again, before talking about "edge" the EA/strategy has to be profitable first.
And ALL, I really mean ALL, technical strategy are based on the past history data. It's always about finding profitable patterns and HOPING it will repeat again in the future (in some cases they really do). Even if you learn candle patterns, which some calling it "non lag", it's basically the same. This is my 18 years of MQL4/MQL5 coding and handling hundreds of traders telling me
If anybody doesn't believe past result for trading, then basically don't trade technical at all. It's simply not making any sense.
Trading fundamental in mid/long term may suitable for them.
So that's my view on "edge".
That's a nice plain and simple way to put it. As I like to say, testing statistics generate probabilities.
Bingo, again. When I observe average consecutive loss count patterns in the statistics, that allows me to adjust position my sizing accordingly.
That would be a bit frustrating for me. When I observe the aforementioned patterns, being able to additionally alter the underlying trade logic as necessary is highly advantageous
So the edge is just statistical probability?
Here you take a calculated risk on the previous statistical probability and hope it bares fruit.
You are probably right. Either you take a chance (gamble) with the EA you just bought in the market here, or you try and come up with your own strategy instead.
The latter at least gives you full insight into what the EA does and doesn't do.
All and all
Isn't it still just a statistical probability that the EAs sold here will continue to give you money based on historical values on the market they trade?
No retail indicator will give better results that 50/50 over time, and most EAs here are based on just those retail indicators.
Nothing wrong with buying any of the EAs here if you like to gamble with your money or spend your time dreaming of successes. It can even most likely be fun sometimes.
Yes a casino runs on statistics, but as you say they change the rules to have the positive number on their side.
Counting cards isn't illegal, but you will get banned from every casino for doing it. Black Jack does have a finite number of cards in the deck, making it doable to count though.
If brokers can change the rules by widening the spreads or slip your orders, then where do you think the positive number lies?
The statistics of retail trading isn't that good to begin with, 90% and upward lose their money in the long run.
EA sellers here just sell the pipe dream with backtest gains of a couple of millions and some fancy AI-generated picture on the sale page.
Retail traders gets lured in to the scheme over and over again.
I think we should distinguish between different meanings of the word "edge".
1) An analytical edge is the ability to identify a recurring market behavior.
2) A statistical edge is the measurable positive expectancy that may result from exploiting that behavior.
3) An execution edge concerns the quality of entries, exits and trading costs.
4) Risk Management Edge determines how the resulting performance translates into returns and drawdown.
These concepts are related.
Identifying a market pattern (analytical edge) does not prove profitability (Risk Management Edge is nessesary),
just as positive historical results (statistical edge) alone do not guarantee an analytical edge (as they can be optimized results).
In my case, after I discovered the recurring market behavior (my analytical edge) to confirm it, and to increase my trust factor, to my EA, i test it on all Major and Minor FX pairs on all Timeframes and Entire Available Historical data.
The statistical results from the backtest and the matching behaviour between live performance and backtest, are used to evaluate whether that behavior provides a measurable advantage and increase furthermore my trust factor to my EA
Of course, none of this guarantees future performance. The goal is not to eliminate uncertainty, but to understand what we are trading, why it might work , and how much confidence the available evidence justifies.
1) An analytical edge is the ability to identify a recurring market behavior.
2) A statistical edge is the measurable positive expectancy that may result from exploiting that behavior.
3) An execution edge concerns the quality of entries, exits and trading costs.
4) Risk Management Edge determines how the resulting performance translates into returns and drawdown.
These concepts are related.
Identifying a market pattern (analytical edge) does not prove profitability (Risk Management Edge is nessesary),
just as positive historical results (statistical edge) alone do not guarantee an analytical edge (as they can be optimized results).
So you're telling me that its still nothing more than a statistical probability of something reoccurring, based on historical charts (ie. backtest). No guarantees, no certainties.
With a fix or a real edge you will atleast know the outcome before it has happened.
But I guess retail traders must put the hope in EAs based on statistics of historical charts, which the brokers can change as they see fit on live charts, with data feeds that isn't centralized, using indicators that give 50/50 outcome.
Thomas Olof Gardling #:
With a fix or a real edge you will atleast know the outcome before it has happened. 😂 🤣 😹
Knowing the outcome of a specific trade before it happens is not what an edge means.
If you knew the outcome with certainty you would avoid loosing trades and you would have a 100% profitability.
You would even enter the trade at the right time to avoid drawdown.
You will then need only 36 trades to compound 100$ to a Million with a CAGR 29,15%
So your HOPES, that an edge has guarantees and certainties and the ability to know the future... are just based on Science fiction. 😛
Knowing the outcome of a specific trade before it happens is not what an edge means.
If you knew the outcome with certainty you would avoid loosing trades and you would have a 100% profitability.
You would even enter the trade at the right time to avoid drawdown.
You will then need only 36 trades to compound 100$ to a Million with a CAGR 29,15%
So your HOPES, that an edge has guarantees and certainties and the ability to know the future... are just based on Science fiction. 😛
Do you know what moves the price? (spoiler, its not a crossover of a moving average or any other retail indicator for that matter)
A fix (like knowing news before its official) will give you the outcome of the price when the news hits, but this doesn't mean that price cant move up and down before its released and you don't know how far the price will move after the news release either.
A fix like banks manipulating the currency market when the rates are set by withholding bids and offers, will earn them billions.
An edge like knowing where most stop orders are located above and below current price, will give you the direction of price at specific locations on the chart. This doesn't mean that price wont move up and down before reaching those level.
Large banks sell this information for very big amounts to hedge funds. Only problem is you cant put a billion dollar into the market without every other hedge fund noticing it. Its a play by its own.
But please go ahead and trade with your 50/50 retail indicators and hope for the best, using statistical probabilities based on historical backtests.
Only positive by being a retail trader is that you can use market orders instead of limit orders.
I understand that every seller here will fight me on this, because its their livelihood that is on the line.
A fix like banks manipulating the currency market when the rates are set by withholding bids and offers, will earn them billions.
That raises another important point about the retail currency 'market'," itself:
Forum on trading, automated trading systems and testing trading strategies
In 7.8 years of retail FX data, none of the rules I tested had a positive net expectancy after spreads.
Ryan L Johnson, 2026.10.13 23:02
The fact that the retail CFD/FX markets have the lowest barriers to entry in terms of trading capital, knowledge, and experience, doesn't mean that they are the easiest in which to profit. Quite the contrary. Consider the underlying model of those over-the-counter (OTC) markets. Each retail CFD/FX broker-dealer has its own contracted "liquidity provider(s)," it's own set of trading terms, a captive pool of retail traders, and takes the other side of those retail traders' positions. There are only so many hedge funds and investment banks, so they are "diversified" among many CFD/FX broker-dealers. Last time I checked, J.P Morgan accounted for about 40% of global FX trading volume. Those liquidity providers also maintain their own private backend connections to the wholesale interbank FX market─another layer of "diversification" of sorts. In contrast thereto, we the retailees are fractured up into "manageable chunks" for the broker-dealers/liquidity providers. Interestingly, this has never stopped anyone from claiming that the CFD/FX "market" (note the intentional omission of the "s" to make it appear singular) is the most liquid "market" in the world. For commercial participants, absolutely. For us in our respective pigeonholes, not so much.
For the average retail FX/CFD trader, there is also little to no equality in price discovery, contract volume access, trade execution priority, nor spreads as contrasted to commercial traders. Much, if not all, of this can be cured by trading on a centralized exchange such as the Chicago Mercantile Exchange (CME) where everyone has access to the same futures liquidity, instruments, price discovery, contract volume access, trade execution priority, and spreads. It's not rocket science but some additional learning is definitely required. The last thing that we'd want to do is be forced to take physical delivery of say, several thousand barrels of oil for having forgotten to close a position prior to LTD (last trading day). Detractors of trading centralized markets will sometimes say that the CME aggregates orders just like OTC broker-dealers do. Not really. There is a big difference between a central non-broker-dealer clearinghouse aggregating the orders of potentially all traders in compliance with exchange regulations versus a host of individual broker-dealers, each aggregating orders as each sees fit and pursuant to each's own "custom trading terms."
Finally, the CFD/FX price feeds are generally filled with noise as contrasted to a real futures market. One potential exception is a DMA (direct-[interbank] market-access) account which is rarely available to retail traders and even if it is, it requires tens of thousands of dollars (at least) to open an account. Real futures prices tend to swing more smoothly and run a bit further. We would be hard pressed to find a major difference between the front-month EURUSD futures contract and a DMA spot EURUSD pair in terms of price action but again, the average retailee will never see a DMA account. At the end of the day in CFD/FX trading, we get the OTC price, etc. that a broker-dealer decides to give us.
Full disclosure... I trade both, but real futures are more profitable.
That raises another important point about the retail currency 'market'," itself:
Thank you Ryan, best answer yet in this thread.
If people think a bit outside the box they can get some of that futures information into their forex trading area with the help of external programs.
But it wont help against the forex brokers shenanigans with spreads and slippages though.