The Remek! Interactive Edge Calculator
The edge in trading is the combination of two factors: the accuracy (the percentage of winners among all trades) and the average win-loss ratio over a large number of trades. Enter your data in the yellow fields below to calculate your edge.
(Probability of a win multiplied by the average win + probability of a loss multiplied by the average loss. Note: loss is a negative number.)
Verifying your edge is a complex and ongoing task. For starters, how do you know the above values?
1. You can backtest, as a first step. Backtesting has some inherent shortcomings, compared to real life. Is one backtest run on a given time period enough? Probably not, since markets change.)
2. You can forward-test in SIM. A step better, but this also has some inherent shortcomings, compared to real life. Is one forward-test run on a given time period enough? Probably not, since markets change. Also: sample size matters. A forward-test of 20, 30, 50 trades is probably not enough.
3. Forward-test with real money. The real deal. Even then, each test run will produce different results. Also, you will need to be able to interpret these results.
See also our series on backtesting and optimization!