Gross edge

A market stall takes in a certain amount each day before it pays rent, stock and wages. That figure is its gross takings, and nobody confuses it with profit. A trading signal has the same kind of number: the average gain per trade, measured as if buying and selling were free and every order filled at the exact price on the chart. That is the gross edge.

In a test, the gross edge is the ceiling, never the result. Every trade pays a toll on the way in and on the way out: commissions, the gap between the buying and the selling price, the slippage of your own order and, for a short position, the fee to borrow the shares. A signal whose gross edge is smaller than that toll loses money even when it is right on average. Edges are counted in basis points, and a small account can pay thirty or forty of them per round trip before the signal has earned anything.

In the logbook the gross number always sits next to the net one, so the question is the same every week: how big is the edge compared with the toll? The earnings entry put it plainly. Under small-account costs, only a signal worth forty or fifty basis points per event would have survived. A pitch that shows only the gross curve is showing the stall's takings and leaving out the rent.