Where is your edge?

March 25, 2015

 

It should be obvious that to build a sustainable trading career requires a trader to have edge over at least some market participants. For short term traders such as day traders, scalpers etc it is even more vital to understand how and why you have edge - when you are trading for just a few seconds or minutes, trading should be less about prediction and more about exploiting edge. This is what I call being the bookmaker rather than the punter.

 

Would you be able to answer the following 3 questions with precise answers?

 

1. Who do you have edge over?

2. How and why do you gain that edge?

3. How exactly are you exploiting that edge?

 

In my experience, most traders struggle to provide adequate answers to these questions. Often the answers are centered around 'reading' markets or charts better than others which to me is far too subjective to be classified as precise answers.

 

It is a key aspect of my scalping tuition to teach traders exactly who we have edge over, how we gain that edge and ways to exploit it. As well as identifying who we need to trade against we also know when not to trade.

 

Knowing when not to trade is an often overlooked discipline but it is essential for traders. Profitability comes from both finding good trades and avoiding bad ones and in my experience too many traders are not equipped to know when not to trade. In part this is because they cannot specifically pinpoint where their edge is.

 

So examine the 3 questions above and try to answer them honestly and precisely; if you cannot or are not happy with your answers then you at least know where you need to start in terms of defining and improving your trading strategy.

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