Where's your EDGE?

In order to be successful as a trader, whether professionally or part-time, we have to find an edge of some sort. That edge can come in many different shapes and sizes, but whatever it is, it gives you a statistical probability of victory against the markets. For some people it is a superior entry formula, exit, analysis of fundamentals, or any one of a million other things (that number is probably low).

I'm quite serious when I say there are literally millions of winning formulas for trading. Of course, there are trade-offs to all of them; but in general it's not hard to find a winning approach. I also believe that in order for an edge to be really useful it needs to be quantifiable. For example, a while back I posted a very simple pattern that represents a quantifiable edge. I'm not suggesting that anyone trade this pattern, as it's a very small sample size and there are many other factors to think about, but it serves as a great example of what it means to calculate your edge.

Now... set that thought aside for a moment, and let me bring in the psychological aspects of trading. I don't know what you think, but for me this is a long hard lesson that I've learned through much experience and many mistakes. The psychological side of trading is far more important than the mechanics.

Most professional traders agree that the psychological side of trading is many times more important that the details of the trading plan. I recently attended a workshop where the speaker suggested that successful trading was 90% psychological. I have NO earthly idea how you could put a number on it like that. However, it's fair to say that it's pretty important and shouldn't be overlooked.

Okay... so let's come back to the idea of your edge. If psychology is so important, wouldn't any mechanical edge be overwhelmed by this weightier part of trading? And if it's so important, wouldn't it be useful, maybe even much more useful to find our edge in that realm. Maybe superior discipline and trading psychology IS your edge!

With that last thought in mind, I will be posting a series of blog articles that might be useful for honing the psychological portion of our trading skill set. I hope you enjoy them and find them useful. Stay tuned.

Good trading...