Creating a trading edge – Is it possible?

A trading edge is a certain approach or special system techniques that, in theory, gives a trader some type of advantage over other market participants, hence making a trader more likely to achieve positive trading results.

Many are cynical about the objective of creating a trading edge, despite the plethora of articles and books on various trading techniques. According to them because many traders may learn and apply this same information, the chances of it providing an edge for any individual trader are limited at best, if not non-existent.

Although logically, on the surface, this may seem like a reasonable critique, in much the same way as searching for the “holy grail’, this statement is more than questionable for reasons:
a. The assumptions underpinning this thinking are essentially flawed.
b. There are traders (although perhaps in the minority) who create positive trading outcomes on a consistent, sustainable basis. This is indicative of the definition of a trading “edge”.

Let’s look at these in more detail.

Challenging flawed assumptions

Although it is correct that many trading techniques are written about and taught, in reality why most of these do not work are either because:

a. System issues – Most people fail to develop a comprehensive, sufficiently specific system that facilitate consistency in action when entering or more commonly exiting a trade. If this is crucial in order to implement any technique, then it is the absence of this rather than the technique that is a major impacting factor.

b. Behavioural issues – Even with the above in place, it is commonly recognised that many traders fail to follow through on such systems. We have written about this in other articles extensively and it likely most traders have discipline issue when trading in the “heat of the action”. Again, a failure to execute is a major contributing factor rather than any technique.

c. A failure to measure and adapt a system as an individual trader – Again this is a common theme in the articles we publish. Any business, including your “trading business” is best served through formal measurement (e.g., in a journal as well as the “accountancy” information). It is only through this that we can identify:
i. How well or otherwise you are following your system
ii. Whether some components of your system would benefit from some amendment to better suit you as an individual trader.
So, if most traders suffer from any or all of the above, then the assumptions that all traders have a robust system that as required for an edge is essentially incorrect.

And successful traders?
We have suggested previously that in any field, those who succeed do the things that most people do not like/fail to do.
The three issues covered in the previous section are more commonly NOT embraced and adhered to by most traders, and it appears as though these are common characteristics by those consistently successful traders that we aspire to be.

The reasons for traders not to embrace these are many, but it boils down to a basics e.g., required education or failure to take trading seriously enough, or invest the effort to do the “hard yards” (it is human nature to look for short cuts).

Arguably therefore, even without looking a special trading technique “a” versus technique “b”, if accepting that the three components discussed above are beneficial, is part of what can make a successful trader. Actioning ALL of these is what most traders don’t do and making these happen could give you an advantage over other market participants – this is your possible trading edge.

And finally
The result of actioning the above in total, and with reference to the third component of trading measurement is you will be able to begin to objectively compare system versus system. It is quite simple.

In summary, Is it possible to create a “trading edge” and give you a potential advantage over other market participants? Well the very fact that most traders don’t do what they need to, as we have discussed above, could theoretically give you that “edge”. This is your starting point and then take it to the next system versus system testing level.