Defining Your Edge In Trading

Often overlooked but probably the most important determinant to success for a trader is the edge they can define for themselves.  Your edge is simply the toolbox of tools you have gathered over time to pre meditate your actions.  Which tools you have come from experiences you lived through and the lessons you learnt in return.  Through trial and error and winning and losing you will see what works for you and what does not.   The patterns are clear and repeatable which show up whether you are on a winning or losing streak.   Below are the trading edges which have consistently brought the best results;

  1. Patience – a very overlooked and undervalued factor but probably the most important.  You have to be willing to sit and wait for your ideal setup.  Setups are triggers that define when you are putting on a trade.  It could be a news release, technical price pattern or a momentum breakout/breakdown.  Whatever the trigger event you must wait patiently for it.  In other words, try not to predict market but rather it is better to respond to markets.
  2. Timing – confusing for most but once recognized can play a critical role in success.  Timing refers to the entry of your transaction, whether it is buying or selling.  The timing of your transaction should correlate to the trigger event.
  3. Capital at Risk (Sizing) – going all in at the start is usually not the best decision.  It is better to leg your way into a trade a few units at a time and once you get confirmation (by the price of the stock or asset going in your favour) then you can start to add a few more units and so on to a level of comfort to your experience.  Size proportionately and to where you are not in an anxious state or uncomfortable feeling in your nervous system.   If you get the setup and trigger event right, the market will do all the work for you and you will make profits.
  4. Setting Expectations – you must be aware of how much you are willing to lose before you enter a position.   This business is about risk management first and foremost.   A typically positive risk/reward setup would equally at least 2.5:1 meaning you may receive $2.5 for every $1 risked.  Some traders look for only better r/r odds, say 3:1 or 5:1 for example.  You have to know where you are entering and what is the perceived r/r (risk/reward equation).  Similarly, you have to be aware of what you are willing to gain.  No trader can get every penny of profit available.  Therefore the great trader will only take what he is given and not be greedy unless the market forces are in a feeding frenzy to one direction.

Defining Your Edge In Trading