Summary

Let's recap. The mysterious, mystical, mythical, magical trading edge is nothing but a little formula we learned back in school called gain expectancy. Now, it turns out that strategies with a positive trading edge tend to fall into two buckets. This happens regardless of time frames, asset classes, instrument, and market phases. Market participants expect inefficiencies to either correct and revert to the mean, or to persist and form trends. Those strategies are mutually exclusive. They have opposite payoffs and risk profiles.

We then took time to understand the properties of each strategy type so that we can come up with better ways to engineer a superior trading edge. Now that we understand how those strategies behave, the next step is to roll up our sleeves, pop the hood, and tune up the signal engine.