Lessons from the Pros

Specialty Skills

Trade with an Edge

Doing anything that is worthwhile, important and difficult means that you must gather your best evaluation, information processing, pattern recognition and problem solving ( i.e., your A-Game).  The above strengths are neither an exhaustive list nor are they necessarily the most important; but they are very powerful and they can contribute to trading in your highest and best interests with your highest and best trader. There is another name for such resources, both internal and external, that are critical to your effectiveness.  It is called having an edge.  An edge is a perceived advantage and, no matter how slight the advantage, it could shift the probabilities in your favor.

Two businessmen, one jumping a cliff in a race car and the other standing looking over the edge.

Trading is indeed a probability endeavor.  Certainty is an elusive concept that has very little relevance in the trading process or in anything in life.  In fact, certainty can be highly problematic as it fosters impulsivity, false assumptions and a lack of clarity and can greatly reduce the reliability of information, if the filter used to evaluate the information is unduly weighted by thinking that you can predict an outcome. It is much better to embrace the uncertainty and ground yourself in maintaining consistency in your methods and ensuring that you are measuring, verifying and documenting the data gleaned from this process.

Now, in case you are thinking that having an edge is a complicated notion fraught with a lot of moving parts and difficult to implement; let me assure you, that would be an incorrect assumption.  To be clear, an edge can be very complicated, but most in trading are straight forward behaviors that will go a long way to supporting the high probability trade.  One example is Online Trading Academy’s Core Strategy class and using it to determine those variables that contribute to placing the high probability trade. Things like using the placement on the curve to determine direction or using the Odds Enhancer tool to get an objective assessment as to what the probability is likely to be.

The purpose of this article is not to outline the specifics of any particular edge but to make an argument for ensuring that you have an edge to your trading.  One of the ways to illustrate that is to consider flipping a coin that has been weighted thus providing an advantage to the heads or tails side.  Even if you knew what side was weighted, could you predict exactly which side would come up when the coin was flipped? No, you would not and could not because the weight does not offer the ability to predict when either coin side will appear, only that each side will appear.  The advantage is in the percentage of times that the weighted side will show.

Free Trading WorkshopOtherwise, with a normal coin and given a large enough statistical sample (say a million flips ) the percentage of heads vs. tails will be 50% for each.  However, the statistics become skewed when the weighted coin is flipped.  One item that must be considered is the importance of consistency.  In other words, the edge that your trading strategy holds must be continuously targeted and implemented  so that over a significant number of trades you will experience a higher percentage of hits. But, if you are inconsistent in the implementation of your rules and strategy, then your edge has become compromised.  You must implement your strategy edge methodically and consistently without erratic departures from the strategy.  Therein rests the power of the edge.

This is what we teach in Mastering the Mental Game online and on-location. Ask your Online Trading Academy representative for more information.  Also, get my book, From Pain to Profit: Secrets of the Peak Performance Trader.

Joyous Trading

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

Join over 170,000 Lessons from the Pros readers. Get new articles delivered to your inbox weekly.