it is said that one must have an ‘edge’ to succeed in the market. What does this word ‘edge’ mean?
He is Edge.
The word “edge” is actually from gambling industry. Edge is calculated mathematically for the each type of game. It is the small probability favouring casinos (houses) over the gamblers. If house edge is 5%. The probability of winning between house and gambler is 52.5% Vs 47.5%. It is known that casinos annual profits are more or less in line with their mathematically calculated edge. More details: http://math.info/Misc/House_Edge/
In trading it is more of a vague term, the edge for trader arises from the trading platform (say algos / order types /co-location) to his mind set ( say a bear wins more in bear market than a bull market), the markets (some traders are good at commodity, some at index , futures or options etc). But every trader have to find his own combination for winning trades
One example of edge in trading is Implied volatility for option writers. The IV is mostly higher than the historical or actual volatility. So if IV is 20% and HV is 18%. Then 2% is the edge for option writers for the risk they undertake.
Splendidly written @TraderVenk
Thanks @Srinivas. I have added something later. Pl see
I will explain in a way I understand it, edge in the sense seeing something only u can see, interpreting data in a way which only u can, it’s an Instinct of a best trader, that’s edge. Pricing and technology is Zerodha’s edge in brokerage business. Jio’s edge in telecom industry was pricing. It’s that only quality which is magnificent in you which sets u apart. That’s why only 1-2% traders make money. All of them are rare ones with natural born instincts. Which others can’t beat.
10-35% Investors make money, but for traders that number is way too low.
My edge is God gifted, yes it is my intuition, till now by the grace of Almighty all my stock selection is extremely successful.
Bear wins more in bear market
For me Edge = (Average winning trade $ X Winning probability) / (Average losing trade $ X Losing probability). Higher the Edge number, better is your strategy. Helps in testing whether your strategy will work in long term. More the test data, more accurate will be the result.
withdrawn the post. Please delete