How to find your trading edge?

You cannot be a successful trader without a solid trading edge. It doesn’t matter how good are the trading conditions you get from your broker, how fast is your execution, or how sophisticated is your money management. But what do you call an edge when trading online?

A set of conditions that when present, gives a higher probability of a trade having a positive outcome is called a trading edge.

A trading edge is a combination between a solid trading strategy, proper risk management and good understanding of trading psychology.

Trying to trade blindly following someone’s edge without having any trading skills will lead to disaster. You first need to be comfortable with the basics of online trading. You have to learn how to do basic analysis – technical, fundamental, news announcements which move the markets, manage risk, size your trades, think through a solid trade, etc.

Trading strategy

It is good to know how different trading strategies and setups work. For example if you are trading short term, effective strategies can be scalping, momentum trading or news trading. If you are mostly focused on long term trades, then you can turn to fundamental analysis.

The next step is to practice those strategies that make sense to you on a demo account. Try to verify if you can build a strategy with these repetitive patterns in simulation. There is no point to put money in the market before you have confirmed the results in a simulation.

Look for trading tools which can help you with your setup. Finding a solid trading edge is hard, but executing it properly might be harder. It is is wise to invest time in learning how to work with a proper trading platform. If you have any coding skills it is worth learning how to build trading algos. This way you will be able to do simulation tests quicker and more accurately. Additionally you will be able to automate your trading edge and make sure you don’t skip any opportunities.

Risk Management

Risk management is crucial in trading. Finding profitable trading strategies takes a lot of time and effort. Unfortunately a lot of people focus only on finding a trading strategy with positive stats. Happy with the results, they move forward to live trading. After the first profits, they decide that the strategy is solid and start increasing their position size. As a result a small negative period eats up all the profits and ruins their account.

Good risk management cannot make a bad trading strategy profitable, but bad risk management can ruin a good trading strategy.

Trading psychology

The psychological aspect of trading is very important. Unfortunately it is frequently underestimated, along with risk management.

Markets are ruled by greed and fear. Therefore trading is a game of greed and fear. If you want to beat the market, you have to overcome your emotions. You need to face it – trading is hard. It requires a certain state of mind.

A good trader is a disciplined trader. You cannot let emotions lead your decisions.