We often hear of trading with an edge, but how do we know for sure we have an edge in our trading? How do we know that the odds are in our favor and that the more we trade, the more our accounts will grow?
An edge is a definable advantage over your competition. If I have backtested moving average systems over the past 20 years of price data and studied the historical charts of all the best stocks in the past 50 years of market history the odds are I will have an advantage over a new trader that has done no homework and is just making guesses. They can at times outperform me but that is more a function of luck than skill. Skill in trading is repeatable actions that can be taken over and over again systematically. Luck is winning from the randomness of your own undefined actions.
Here are ten of the primary edges profitable traders have over their competition.
- Trading the price action as it plays out has a better odds of putting a trader on the right side of the market than a trader with a bunch of opinions and predictions.
- Backtested signals that worked in the past have better odds of success in the future than guessing which way the market will go.
- A trader with a trading plan will usually beat a trader with no plan. A trading plan will usually guide a trader to make better decisions than the emotions of the people on the other side of your trade.
- A trader who is patient with their winning trades will have bigger wins than traders who take profits to early.
- Putting your stop loss in a spot that is unlikely to be triggered gives your trades time to work out without being prematurely stopped out during normal volatility.
- Finding repeating patterns in the market and trading them over and over gives you and edge over the traders that do not know about the pattern.
- Getting into a trade when the majority are getting out.
- Getting out of a trade when the majority are getting in.
- Trading a position size that keeps your emotions manageable.
- Following a trend until the end when it bends.