Futures, FX, Trading Education

Defining your edge in the marketplace – Trading 101

To become a successful trader, it is imperative to define, refine, and design your edge. A trader lacking an edge in the market is much like a fish swimming upstream, as they simply will not go very far. Edges are not easy to develop. Even if you have one, they do not last forever. Without an edge, becoming profitable in the market is quite challenging. This begs the question, what exactly is an edge? An edge can be defined as the ability of a trader or investor to consistently accumulate results that exceed the results of both random chance, and luck.

 A trader has an edge when they can generate long-term profits achieved with meaningful probability. The reason people don’t succeed is that they are thinking too big, instead of small. This is because our edge is quite small when we first start out, which implies we should also think smaller, and progressively grow out as we learn and adapt from practical experience. This article discusses how to define, and refine your edge in the marketplace, provides tips on how you can personalize and design your individual edge.

Defining your edge

One of the most difficult parts of developing your edge is finding it, to begin with. Many traders are completely unaware of the edge concept and are even unsure if they need one at all. The reality is that a trading edge is essential when formulating an effective trading strategy as it provides you a game plan or guideline for trading. An edge must be identifiable, measurable, and realistic. While many traders want to believe the trading in the stock market is very profitable, a trader must understand that even with an effective trading edge, you can shift from periods where you are accumulating large sums of money, to not making any money at all for months. If you feel as though you have developed or cultivated a realistic and reliable, it is imperative that it is tested out, and that its rules are clearly defined. To make the most of a newly developed trading edge, rather than focusing on a multitude of strategies,  it is best to fixate on one strategy, utilize the tiny edge you possess, keep your thinking small, and work up from there.

Refining your edge

If you aren’t moving forward, you are moving backward. When it comes to your edge, if you aren’t looking for ways to modify or enhance it, you will lose it before you know. As we know, good things don’t last forever, To effectively refine your edge, you must be willing to adapt, and change strategies when they provide inconsistent results. When refining your edge, it is easy to make mistakes in the process, and you may panic and back out of new strategies when they initially fail. Investing or trading requires discipline. If you get caught up in the short-term and focus solely on short-term profits you may be in for a very emotional and rough ride, especially without a well-refined edge.

Designing your edge

Once you have found your edge, defined it, and refined it, it is important to design your edge to your own specifications and understanding. With an automated trading system for example, If any of the elements is performing poorly, it could cripple the whole system. Every investor must find his edge, or a way to obtain an edge, if they desire to accumulate positive returns in the long run. What constitutes an edge, and how a trader can evolve from gaining an edge can be observed as a fundamental aspect of earning profits through long-term trading. In many cases, the initial keys to success are to utilize what tiny edge you possess, keep your thinking small, maintain a level head, and work up from there.

Resigning your edge

For some it may seem like the search for their edge is endless, and some even spend several years searching for it. While a trading edge is essential, in reality, if you have struggled over the long-term to find this seemingly impossible to find edge, at some point you should cut your losses and stop doing so. Because the financial markets can shift instantaneously, an edge discovered yesterday can be rendered useless the following day. While a trading edge has its benefits, as it can provide you with legitimate profits in the short-term, if you spend a considerable amount of time searching for an edge in the first place, it is more likely to waste your time, and cause you to lose your money and investing opportunities.

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