Trading Edge – An Important Requirement for a trader
Trading Edge: What does it mean? Why is it important.
Success in financial markets is about being consistent. It is not a get rich quick scheme, rather a business which requires efforts and patience. In our trading career, we may have come across a select few traders who would tasted success more often than others. Do they have any special mantra for trading success? Do they know anything more than us? Or is it just the way it is? The answer is simple, they have a system in play with an edge, which when repeated over time, gives results in their favor.
Imagine a roulette wheel in a casino, It has some blocks are colored in red and some in black, a few of those blocks are colored in white. There lies the secret. You bet on the ball landing in red block and the ball lands in black blocks, you loose money and if it lands in red block you win.
Now what about those white blocks? Those white blocks shift the equation in favor of the casino. This when done on the long run, benefits the casino. This is the edge.
As a retail trader, you have to find your trading edge and repeat it again and again, you will be in profits consistently. What can be your edge?
- Technical skill;
- Money Management.
- Emotional discipline;
A combination of all these aspects, can help us build a trading edge. Imagine a technical concept in which you have had profits, let it be double top, channels etc.,. You will be confident about trading that setup compared to other technical aspects. You can spend time researching on that particular concept.
Improvise on that and seek scrips that provide trading opportunity in this aspect. Repeat the process and you will achieve consistency.
Proper risk and money management is about picking the correct quantity of shares/ lots by employing the correct amount of capital. This helps a trader to avoid/minimize both capital risk and account risk. In order to do that, we have to be aware of our demands and abilities when it comes to trading. It is foolish to think about making 100% -120% returns every time we trade. It depends on the setup that we get. A return of 15- 20% obtained with a proper trading edge is like Gold dust. It can provide you income for a life time. Look for those kinds of setups.
No matter how good you are technically and money wise, if we don’t have emotional intelligence, you are bound to fail. A good emotional intelligence is a result of sound technical analysis skills and shrewd position sizing. As written in the earlier post, A trading journal can help you to understand your trading edge.
Some other aspects like ability to pick stocks can also help you to become a consistent successful trader. So find your edge, let it play out and be among the select few!