Where’s Your Trading Edge?

In order to be successful as a trader, whether professionally or part-time, it’s important 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, I’ve posted several basic systems and examples the provide a quantifiable edge.  I'm not suggesting that anyone trade these systems, but it serves as a great example of what it means to calculate your edge.

My main point is that it’s not too hard to find a tradable edge.  Why then are so few traders successful over the long haul?  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.  In other words, finding or creating a system is the easy part. Executing that system in real time, with great consistency, is much more difficult.

Most professional traders agree that the psychological side of trading is many times more important that the details of the trading plan. I once 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 what exactly is 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 wrote about this a couple of years ago, and now seemed like the right time to revise and update this information. I hope you enjoy and find it useful.  In these most turbulent market times, this aspect of trading is more crucial to remember than ever, at least for me.  Stay tuned.

Good trading...