DEFINITION
Edge
A statistical advantage in a trading strategy that produces positive expected value over a large sample of trades. Without an edge, even perfect discipline cannot produce long-term profitability.
In depth
Edge is measured as expectancy: (win rate × average win) − (loss rate × average loss). A positive expectancy means you make money over a large sample. Discipline keeps you in the game long enough for edge to play out.
Example
Win rate 40%, average win $300, average loss $100: expectancy = (0.4 × 300) − (0.6 × 100) = $60 per trade. Positive edge.
Related terms
Win Rate
The percentage of trades that close profitably. A common misleading metric — high win rates with low RR can be less profitable than low win rates with high RR.
Risk-Reward Ratio
The ratio of potential profit to potential loss on a single trade. A 1:3 RR trade risks $1 to make $3. Strategies with RR above 1:2 can be profitable even with win rates below 50%.
R-Multiple
A normalized unit measuring trade outcome as a multiple of initial risk. If you risked $100 and made $300, that's a +3R trade. Allows comparing trade quality regardless of position size or account size.
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