GOOD AFTERNOON STEEMIT,
Happy Valentines Day... if anyone gives a fuck.
😂😂.
Now. Moving onnn. One thing that gets thrown around when you’re developing a trading strategy that makes money, is the need to define your edge. There is always talk around the need to develop and define your edge as a trader.
Something that is concerning however, is that a lot of the time when you ask a new trader what their edge is, they can’t tell you. In trading, you’re trying to be the house, but if you can’t define your edge then you’re nothing more than a horse track punter.
What is a Trading Edge?
Your trading edge is the thing that puts the odds in your favour when you trade. It is made up of the strategies that you trade, within a certain time frame, and with a certain risk profile.
For example, your edge may need your strategy to be executed over a longer period of time at 1:3 risk:reward, to be profitable.
Consider these 3 elements that make up your trading edge:
The Trading Strategy Itself
This is the way you trade. Your trading strategy itself that defines when you enter and exit a trade.
For example it could be indicator based, or using pure price action techniques around key support/resistance levels.
While there always must be an element of human intervention, all successful traders have a set of rules for entries and exits that they know work.
The Timeframe Required
Your edge might not be profitable in the short term, but if you’ve done the testing and know that over 100+ trades then it is profitable, why would you get upset and throw in the towel after just 50?
If you know the timeframe required for your edge to be executed, then you can take some of the stress out of downturns that you’re inevitably going to have while trading.
Know the timeframe and execute your edge over and over to stay profitable.
The Risk Profile Required
Finally, a key part of any trading edge is risk management. You have the ability to be the house and only take trades that will have a higher win rate than loss rate.
By using risk:reward ratios, you’re able to put yourself in the position a casino puts themselves in. For example only taking trades at a 1:3 risk:reward ratio will allow you to even run at a winning percentage of under 50% and still make money.
In my opinion, this is the most important aspect of successfully executing any trading edge. Keep your ratios high, cut losers short and add into winners.
Best of probabilities to you.
Peace ✌🏻.
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