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<h1 id="edge-positioning">Edge positioning<a class="headerlink" href="#edge-positioning" title="Permanent link">&para;</a></h1>
<p>This page explains how to use Edge Positioning module in your bot in order to enter into a trade only if the trade has a reasonable win rate and risk reward ratio, and consequently adjust your position size and stoploss.</p>
<div class="admonition warning">
<p class="admonition-title">Warning</p>
<p>Edge positioning is not compatible with dynamic (volume-based) whitelist.</p>
</div>
<div class="admonition note">
<p class="admonition-title">Note</p>
<p>Edge does not consider anything else than buy/sell/stoploss signals. So trailing stoploss, ROI, and everything else are ignored in its calculation.</p>
</div>
<h2 id="introduction">Introduction<a class="headerlink" href="#introduction" title="Permanent link">&para;</a></h2>
<p>Trading is all about probability. No one can claim that he has a strategy working all the time. You have to assume that sometimes you lose.</p>
<p>But it doesn't mean there is no rule, it only means rules should work "most of the time". Let's play a game: we toss a coin, heads: I give you 10<span class="arithmatex"><span class="MathJax_Preview">, tails: you give me 10</span><script type="math/tex">, tails: you give me 10</script></span>. Is it an interesting game? No, it's quite boring, isn't it?</p>
<p>But let's say the probability that we have heads is 80% (because our coin has the displaced distribution of mass or other defect), and the probability that we have tails is 20%. Now it is becoming interesting...</p>
<p>That means 10$ X 80% versus 10$ X 20%. 8$ versus 2<span class="arithmatex"><span class="MathJax_Preview">. That means over time you will win 8</span><script type="math/tex">. That means over time you will win 8</script></span> risking only 2$ on each toss of coin.</p>
<p>Let's complicate it more: you win 80% of the time but only 2<span class="arithmatex"><span class="MathJax_Preview">, I win 20% of the time but 8</span><script type="math/tex">, I win 20% of the time but 8</script></span>. The calculation is: 80% X 2$ versus 20% X 8<span class="arithmatex"><span class="MathJax_Preview">. It is becoming boring again because overtime you win <span class="arithmatex"><span class="MathJax_Preview">1.6</span><script type="math/tex">1.6</script></span> (80% X 2 (80% X 2</span><script type="math/tex">. It is becoming boring again because overtime you win <span class="arithmatex"><span class="MathJax_Preview">1.6</span><script type="math/tex">1.6</script></span> (80% X 2 (80% X 2</script></span>) and me <span class="arithmatex"><span class="MathJax_Preview">1.6 (20% X 8</span><script type="math/tex">1.6 (20% X 8</script></span>) too.</p>
<p>The question is: How do you calculate that? How do you know if you wanna play?</p>
<p>The answer comes to two factors:</p>
<ul>
<li>Win Rate</li>
<li>Risk Reward Ratio</li>
</ul>
<h3 id="win-rate">Win Rate<a class="headerlink" href="#win-rate" title="Permanent link">&para;</a></h3>
<p>Win Rate (<em>W</em>) is is the mean over some amount of trades (<em>N</em>) what is the percentage of winning trades to total number of trades (note that we don't consider how much you gained but only if you won or not).</p>
<div class="highlight"><pre><span></span><code>W = (Number of winning trades) / (Total number of trades) = (Number of winning trades) / N
</code></pre></div>
<p>Complementary Loss Rate (<em>L</em>) is defined as</p>
<div class="highlight"><pre><span></span><code>L = (Number of losing trades) / (Total number of trades) = (Number of losing trades) / N
</code></pre></div>
<p>or, which is the same, as</p>
<div class="highlight"><pre><span></span><code>L = 1 – W
</code></pre></div>
<h3 id="risk-reward-ratio">Risk Reward Ratio<a class="headerlink" href="#risk-reward-ratio" title="Permanent link">&para;</a></h3>
<p>Risk Reward Ratio (<em>R</em>) is a formula used to measure the expected gains of a given investment against the risk of loss. It is basically what you potentially win divided by what you potentially lose:</p>
<div class="highlight"><pre><span></span><code>R = Profit / Loss
</code></pre></div>
<p>Over time, on many trades, you can calculate your risk reward by dividing your average profit on winning trades by your average loss on losing trades:</p>
<div class="highlight"><pre><span></span><code>Average profit = (Sum of profits) / (Number of winning trades)
Average loss = (Sum of losses) / (Number of losing trades)
R = (Average profit) / (Average loss)
</code></pre></div>
<h3 id="expectancy">Expectancy<a class="headerlink" href="#expectancy" title="Permanent link">&para;</a></h3>
<p>At this point we can combine <em>W</em> and <em>R</em> to create an expectancy ratio. This is a simple process of multiplying the risk reward ratio by the percentage of winning trades and subtracting the percentage of losing trades, which is calculated as follows:</p>
<div class="highlight"><pre><span></span><code>Expectancy Ratio = (Risk Reward Ratio X Win Rate) – Loss Rate = (R X W) – L
</code></pre></div>
<p>So lets say your Win rate is 28% and your Risk Reward Ratio is 5:</p>
<div class="highlight"><pre><span></span><code>Expectancy = (5 X 0.28) – 0.72 = 0.68
</code></pre></div>
<p>Superficially, this means that on average you expect this strategy’s trades to return .68 times the size of your loses. This is important for two reasons: First, it may seem obvious, but you know right away that you have a positive return. Second, you now have a number you can compare to other candidate systems to make decisions about which ones you employ.</p>
<p>It is important to remember that any system with an expectancy greater than 0 is profitable using past data. The key is finding one that will be profitable in the future.</p>
<p>You can also use this value to evaluate the effectiveness of modifications to this system.</p>
<p><strong>NOTICE:</strong> It's important to keep in mind that Edge is testing your expectancy using historical data, there's no guarantee that you will have a similar edge in the future. It's still vital to do this testing in order to build confidence in your methodology, but be wary of "curve-fitting" your approach to the historical data as things are unlikely to play out the exact same way for future trades.</p>
<h2 id="how-does-it-work">How does it work?<a class="headerlink" href="#how-does-it-work" title="Permanent link">&para;</a></h2>
<p>If enabled in config, Edge will go through historical data with a range of stoplosses in order to find buy and sell/stoploss signals. It then calculates win rate and expectancy over <em>N</em> trades for each stoploss. Here is an example:</p>
<table>
<thead>
<tr>
<th>Pair</th>
<th style="text-align: center;">Stoploss</th>
<th style="text-align: right;">Win Rate</th>
<th style="text-align: right;">Risk Reward Ratio</th>
<th style="text-align: right;">Expectancy</th>
</tr>
</thead>
<tbody>
<tr>
<td>XZC/ETH</td>
<td style="text-align: center;">-0.01</td>
<td style="text-align: right;">0.50</td>
<td style="text-align: right;">1.176384</td>
<td style="text-align: right;">0.088</td>
</tr>
<tr>
<td>XZC/ETH</td>
<td style="text-align: center;">-0.02</td>
<td style="text-align: right;">0.51</td>
<td style="text-align: right;">1.115941</td>
<td style="text-align: right;">0.079</td>
</tr>
<tr>
<td>XZC/ETH</td>
<td style="text-align: center;">-0.03</td>
<td style="text-align: right;">0.52</td>
<td style="text-align: right;">1.359670</td>
<td style="text-align: right;">0.228</td>
</tr>
<tr>
<td>XZC/ETH</td>
<td style="text-align: center;">-0.04</td>
<td style="text-align: right;">0.51</td>
<td style="text-align: right;">1.234539</td>
<td style="text-align: right;">0.117</td>
</tr>
</tbody>
</table>
<p>The goal here is to find the best stoploss for the strategy in order to have the maximum expectancy. In the above example stoploss at 3% leads to the maximum expectancy according to historical data.</p>
<p>Edge module then forces stoploss value it evaluated to your strategy dynamically.</p>
<h3 id="position-size">Position size<a class="headerlink" href="#position-size" title="Permanent link">&para;</a></h3>
<p>Edge also dictates the stake amount for each trade to the bot according to the following factors:</p>
<ul>
<li>Allowed capital at risk</li>
<li>Stoploss</li>
</ul>
<p>Allowed capital at risk is calculated as follows:</p>
<div class="highlight"><pre><span></span><code>Allowed capital at risk = (Capital available_percentage) X (Allowed risk per trade)
</code></pre></div>
<p>Stoploss is calculated as described above against historical data.</p>
<p>Your position size then will be:</p>
<div class="highlight"><pre><span></span><code>Position size = (Allowed capital at risk) / Stoploss
</code></pre></div>
<p>Example:</p>
<p>Let's say the stake currency is ETH and you have 10 ETH on the exchange, your capital available percentage is 50% and you would allow 1% of risk for each trade. thus your available capital for trading is <strong>10 x 0.5 = 5 ETH</strong> and allowed capital at risk would be <strong>5 x 0.01 = 0.05 ETH</strong>.</p>
<p>Let's assume Edge has calculated that for <strong>XLM/ETH</strong> market your stoploss should be at 2%. So your position size will be <strong>0.05 / 0.02 = 2.5 ETH</strong>.</p>
<p>Bot takes a position of 2.5 ETH on XLM/ETH (call it trade 1). Up next, you receive another buy signal while trade 1 is still open. This time on <strong>BTC/ETH</strong> market. Edge calculated stoploss for this market at 4%. So your position size would be 0.05 / 0.04 = 1.25 ETH (call it trade 2).</p>
<p>Note that available capital for trading didn’t change for trade 2 even if you had already trade 1. The available capital doesn’t mean the free amount on your wallet.</p>
<p>Now you have two trades open. The bot receives yet another buy signal for another market: <strong>ADA/ETH</strong>. This time the stoploss is calculated at 1%. So your position size is <strong>0.05 / 0.01 = 5 ETH</strong>. But there are already 3.75 ETH blocked in two previous trades. So the position size for this third trade would be <strong>5 – 3.75 = 1.25 ETH</strong>.</p>
<p>Available capital doesn’t change before a position is sold. Let’s assume that trade 1 receives a sell signal and it is sold with a profit of 1 ETH. Your total capital on exchange would be 11 ETH and the available capital for trading becomes 5.5 ETH.</p>
<p>So the Bot receives another buy signal for trade 4 with a stoploss at 2% then your position size would be <strong>0.055 / 0.02 = 2.75 ETH</strong>.</p>
<h2 id="configurations">Configurations<a class="headerlink" href="#configurations" title="Permanent link">&para;</a></h2>
<p>Edge module has following configuration options:</p>
<table>
<thead>
<tr>
<th>Parameter</th>
<th>Description</th>
</tr>
</thead>
<tbody>
<tr>
<td><code>enabled</code></td>
<td>If true, then Edge will run periodically. <br><em>Defaults to <code>false</code>.</em> <br> <strong>Datatype:</strong> Boolean</td>
</tr>
<tr>
<td><code>process_throttle_secs</code></td>
<td>How often should Edge run in seconds. <br><em>Defaults to <code>3600</code> (once per hour).</em> <br> <strong>Datatype:</strong> Integer</td>
</tr>
<tr>
<td><code>calculate_since_number_of_days</code></td>
<td>Number of days of data against which Edge calculates Win Rate, Risk Reward and Expectancy. <br> <strong>Note</strong> that it downloads historical data so increasing this number would lead to slowing down the bot. <br><em>Defaults to <code>7</code>.</em> <br> <strong>Datatype:</strong> Integer</td>
</tr>
<tr>
<td><code>capital_available_percentage</code></td>
<td><strong>DEPRECATED - <a href="../configuration/#Available balance">replaced with <code>tradable_balance_ratio</code></a></strong> This is the percentage of the total capital on exchange in stake currency. <br>As an example if you have 10 ETH available in your wallet on the exchange and this value is 0.5 (which is 50%), then the bot will use a maximum amount of 5 ETH for trading and considers it as available capital. <br><em>Defaults to <code>0.5</code>.</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>allowed_risk</code></td>
<td>Ratio of allowed risk per trade. <br><em>Defaults to <code>0.01</code> (1%)).</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>stoploss_range_min</code></td>
<td>Minimum stoploss. <br><em>Defaults to <code>-0.01</code>.</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>stoploss_range_max</code></td>
<td>Maximum stoploss. <br><em>Defaults to <code>-0.10</code>.</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>stoploss_range_step</code></td>
<td>As an example if this is set to -0.01 then Edge will test the strategy for <code>[-0.01, -0,02, -0,03 ..., -0.09, -0.10]</code> ranges. <br> <strong>Note</strong> than having a smaller step means having a bigger range which could lead to slow calculation. <br> If you set this parameter to -0.001, you then slow down the Edge calculation by a factor of 10. <br><em>Defaults to <code>-0.001</code>.</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>minimum_winrate</code></td>
<td>It filters out pairs which don't have at least minimum_winrate. <br>This comes handy if you want to be conservative and don't comprise win rate in favour of risk reward ratio. <br><em>Defaults to <code>0.60</code>.</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>minimum_expectancy</code></td>
<td>It filters out pairs which have the expectancy lower than this number. <br>Having an expectancy of 0.20 means if you put 10$ on a trade you expect a 12$ return. <br><em>Defaults to <code>0.20</code>.</em> <br> <strong>Datatype:</strong> Float</td>
</tr>
<tr>
<td><code>min_trade_number</code></td>
<td>When calculating <em>W</em>, <em>R</em> and <em>E</em> (expectancy) against historical data, you always want to have a minimum number of trades. The more this number is the more Edge is reliable. <br>Having a win rate of 100% on a single trade doesn't mean anything at all. But having a win rate of 70% over past 100 trades means clearly something. <br><em>Defaults to <code>10</code> (it is highly recommended not to decrease this number).</em> <br> <strong>Datatype:</strong> Integer</td>
</tr>
<tr>
<td><code>max_trade_duration_minute</code></td>
<td>Edge will filter out trades with long duration. If a trade is profitable after 1 month, it is hard to evaluate the strategy based on it. But if most of trades are profitable and they have maximum duration of 30 minutes, then it is clearly a good sign.<br><strong>NOTICE:</strong> While configuring this value, you should take into consideration your ticker interval. As an example filtering out trades having duration less than one day for a strategy which has 4h interval does not make sense. Default value is set assuming your strategy interval is relatively small (1m or 5m, etc.).<br><em>Defaults to <code>1440</code> (one day).</em> <br> <strong>Datatype:</strong> Integer</td>
</tr>
<tr>
<td><code>remove_pumps</code></td>
<td>Edge will remove sudden pumps in a given market while going through historical data. However, given that pumps happen very often in crypto markets, we recommend you keep this off.<br><em>Defaults to <code>false</code>.</em> <br> <strong>Datatype:</strong> Boolean</td>
</tr>
</tbody>
</table>
<h2 id="running-edge-independently">Running Edge independently<a class="headerlink" href="#running-edge-independently" title="Permanent link">&para;</a></h2>
<p>You can run Edge independently in order to see in details the result. Here is an example:</p>
<div class="highlight"><pre><span></span><code>freqtrade<span class="w"> </span>edge
</code></pre></div>
<p>An example of its output:</p>
<table>
<thead>
<tr>
<th style="text-align: left;">pair</th>
<th style="text-align: right;">stoploss</th>
<th style="text-align: right;">win rate</th>
<th style="text-align: right;">risk reward ratio</th>
<th style="text-align: right;">required risk reward</th>
<th style="text-align: right;">expectancy</th>
<th style="text-align: right;">total number of trades</th>
<th style="text-align: right;">average duration (min)</th>
</tr>
</thead>
<tbody>
<tr>
<td style="text-align: left;">AGI/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.64</td>
<td style="text-align: right;">5.86</td>
<td style="text-align: right;">0.56</td>
<td style="text-align: right;">3.41</td>
<td style="text-align: right;">14</td>
<td style="text-align: right;">54</td>
</tr>
<tr>
<td style="text-align: left;">NXS/BTC</td>
<td style="text-align: right;">-0.03</td>
<td style="text-align: right;">0.64</td>
<td style="text-align: right;">2.99</td>
<td style="text-align: right;">0.57</td>
<td style="text-align: right;">1.54</td>
<td style="text-align: right;">11</td>
<td style="text-align: right;">26</td>
</tr>
<tr>
<td style="text-align: left;">LEND/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.82</td>
<td style="text-align: right;">2.05</td>
<td style="text-align: right;">0.22</td>
<td style="text-align: right;">1.50</td>
<td style="text-align: right;">11</td>
<td style="text-align: right;">36</td>
</tr>
<tr>
<td style="text-align: left;">VIA/BTC</td>
<td style="text-align: right;">-0.01</td>
<td style="text-align: right;">0.55</td>
<td style="text-align: right;">3.01</td>
<td style="text-align: right;">0.83</td>
<td style="text-align: right;">1.19</td>
<td style="text-align: right;">11</td>
<td style="text-align: right;">48</td>
</tr>
<tr>
<td style="text-align: left;">MTH/BTC</td>
<td style="text-align: right;">-0.09</td>
<td style="text-align: right;">0.56</td>
<td style="text-align: right;">2.82</td>
<td style="text-align: right;">0.80</td>
<td style="text-align: right;">1.12</td>
<td style="text-align: right;">18</td>
<td style="text-align: right;">52</td>
</tr>
<tr>
<td style="text-align: left;">ARDR/BTC</td>
<td style="text-align: right;">-0.04</td>
<td style="text-align: right;">0.42</td>
<td style="text-align: right;">3.14</td>
<td style="text-align: right;">1.40</td>
<td style="text-align: right;">0.73</td>
<td style="text-align: right;">12</td>
<td style="text-align: right;">42</td>
</tr>
<tr>
<td style="text-align: left;">BCPT/BTC</td>
<td style="text-align: right;">-0.01</td>
<td style="text-align: right;">0.71</td>
<td style="text-align: right;">1.34</td>
<td style="text-align: right;">0.40</td>
<td style="text-align: right;">0.67</td>
<td style="text-align: right;">14</td>
<td style="text-align: right;">30</td>
</tr>
<tr>
<td style="text-align: left;">WINGS/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.56</td>
<td style="text-align: right;">1.97</td>
<td style="text-align: right;">0.80</td>
<td style="text-align: right;">0.65</td>
<td style="text-align: right;">27</td>
<td style="text-align: right;">42</td>
</tr>
<tr>
<td style="text-align: left;">VIBE/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.83</td>
<td style="text-align: right;">0.91</td>
<td style="text-align: right;">0.20</td>
<td style="text-align: right;">0.59</td>
<td style="text-align: right;">12</td>
<td style="text-align: right;">35</td>
</tr>
<tr>
<td style="text-align: left;">MCO/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.79</td>
<td style="text-align: right;">0.97</td>
<td style="text-align: right;">0.27</td>
<td style="text-align: right;">0.55</td>
<td style="text-align: right;">14</td>
<td style="text-align: right;">31</td>
</tr>
<tr>
<td style="text-align: left;">GNT/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.50</td>
<td style="text-align: right;">2.06</td>
<td style="text-align: right;">1.00</td>
<td style="text-align: right;">0.53</td>
<td style="text-align: right;">18</td>
<td style="text-align: right;">24</td>
</tr>
<tr>
<td style="text-align: left;">HOT/BTC</td>
<td style="text-align: right;">-0.01</td>
<td style="text-align: right;">0.17</td>
<td style="text-align: right;">7.72</td>
<td style="text-align: right;">4.81</td>
<td style="text-align: right;">0.50</td>
<td style="text-align: right;">209</td>
<td style="text-align: right;">7</td>
</tr>
<tr>
<td style="text-align: left;">SNM/BTC</td>
<td style="text-align: right;">-0.03</td>
<td style="text-align: right;">0.71</td>
<td style="text-align: right;">1.06</td>
<td style="text-align: right;">0.42</td>
<td style="text-align: right;">0.45</td>
<td style="text-align: right;">17</td>
<td style="text-align: right;">38</td>
</tr>
<tr>
<td style="text-align: left;">APPC/BTC</td>
<td style="text-align: right;">-0.02</td>
<td style="text-align: right;">0.44</td>
<td style="text-align: right;">2.28</td>
<td style="text-align: right;">1.27</td>
<td style="text-align: right;">0.44</td>
<td style="text-align: right;">25</td>
<td style="text-align: right;">43</td>
</tr>
<tr>
<td style="text-align: left;">NEBL/BTC</td>
<td style="text-align: right;">-0.03</td>
<td style="text-align: right;">0.63</td>
<td style="text-align: right;">1.29</td>
<td style="text-align: right;">0.58</td>
<td style="text-align: right;">0.44</td>
<td style="text-align: right;">19</td>
<td style="text-align: right;">59</td>
</tr>
</tbody>
</table>
<h3 id="update-cached-pairs-with-the-latest-data">Update cached pairs with the latest data<a class="headerlink" href="#update-cached-pairs-with-the-latest-data" title="Permanent link">&para;</a></h3>
<p>Edge requires historic data the same way as backtesting does.
Please refer to the <a href="../data-download/">Data Downloading</a> section of the documentation for details.</p>
<h3 id="precising-stoploss-range">Precising stoploss range<a class="headerlink" href="#precising-stoploss-range" title="Permanent link">&para;</a></h3>
<div class="highlight"><pre><span></span><code>freqtrade<span class="w"> </span>edge<span class="w"> </span>--stoplosses<span class="o">=</span>-0.01,-0.1,-0.001<span class="w"> </span><span class="c1">#min,max,step</span>
</code></pre></div>
<h3 id="advanced-use-of-timerange">Advanced use of timerange<a class="headerlink" href="#advanced-use-of-timerange" title="Permanent link">&para;</a></h3>
<div class="highlight"><pre><span></span><code>freqtrade<span class="w"> </span>edge<span class="w"> </span>--timerange<span class="o">=</span><span class="m">20181110</span>-20181113
</code></pre></div>
<p>Doing <code>--timerange=-20190901</code> will get all available data until September 1<sup>st</sup> (excluding September 1<sup>st</sup> 2019).</p>
<p>The full timerange specification:</p>
<ul>
<li>Use tickframes till 2018/01/31: <code>--timerange=-20180131</code></li>
<li>Use tickframes since 2018/01/31: <code>--timerange=20180131-</code></li>
<li>Use tickframes since 2018/01/31 till 2018/03/01 : <code>--timerange=20180131-20180301</code></li>
<li>Use tickframes between POSIX timestamps 1527595200 1527618600: <code>--timerange=1527595200-1527618600</code></li>
</ul>
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