The Truth About Trading With An Edge

The Popular Belief About Edges

The popular belief is that an edge is something that a trader knows or uses, that gives them an advantage over the market, or over all of the other traders. For example, a trader might believe that using a particular indicator (e.g. the Relative Strength Index) in a specific manner (e.g. making short trades when the RSI is above 84) gives them an edge over traders that are not using the same indicator in the same manner (e.g. traders that make short trades when the RSI is above 70).

Many new traders spend years (seriously, years) trying a variety of different indicators, a variety of different indicator settings (e.g. a length of 10, then a length of 15, etc.), and a variety of different chart settings (e.g. time based charts, ticks based charts, volume based charts, etc.), in an attempt to find the combination that gives them their edge.

The Truth About Edges

The truth is that there are traders who believe that they have an edge, and there are traders who believe that they need an edge and are consequently looking for one, and there are traders who laugh every time someone mentions an edge, and then make another profitable trade. In other words, there is no such thing as an edge, not over the market, and not over other traders (unless you consider having received good trading instruction as an edge :-) ).
Successful trading is not about being in competition with the market or with other traders, and quite the opposite is actually the case. Successful trading is about being in agreement with the market, and being in agreement with other professional traders (specifically professional traders).

Many new traders will disagree with this, and if you are one of them, consider that the traders who believe that they have an edge will never tell any other traders what trade they are about to make, because by doing so they will be negating their edge. Conversely, professional traders will tell other traders what trade they are about to make without any hesitation, because other traders knowing about the trade, or making the same trade, does not affect the potential of the trade at all.

The Never-ending Search for an Edge

If you are a new trader that is just starting the endless search for your edge, or if you are a trader that has already spent several years looking for your edge, stop doing so before you finish reading this sentence, because the search for a trading edge is as futile as the search for the holy grail of trading.

http://www.about.com/money/

this doesn't mean you should expose trading system, sharing idea's about trading is not the same as giving your trading secrects away

i thought i had an edge come to find out i was in agreement with the market, what every that mean

With this statement above, which I agree with, shows there really isnt an edge in trading. Young players looking for that edge will search high and low for the edge, instead of working for it and finding what works, well at the same time developing discipline, patience and focus.

I have an edge. It's a very sharp and efficient one. I use it every morning when shaving.

for new and indeed anyone looking for winning trades , using mt4 or mt5 why not join and registar on their community web site and you wil find a wide range of various indicators , chart patterns etc , from old ones to recently updated, and from free to more pricey ones

Hi PT, great thread and appreciate the efforts to often help others.

I agree, there is no real point in trading against what the market is thinking.

My own idea of an edge was a little different though as I never saw myself in competition with the market (for reasons you mentioned).

I always thought of an edge as something that simply allowed me to win more than I lose. An edge in the market can also be thought of as an approach that helps a trader determine with higher probability the direction the market is going next and tag along for the ride.

As you pointed out, an edge OVER the market in theory does not exist since if we are going against the majority of participants (or money flow volume), then we are going against PA, and that's not good.

Of course, those who build positions in anticipation of a price swing action coming soon and are happy to ride the drawdown as price continues against them (which is what I am doing now on GU) will disagree with the above I guess.

Now I'm confused...

I want to say something in reply but you have presented the case in so complete a manner as to leave me nothing to say, except this: Bravo! well Said! I couldn't agree with you more!!

http://www.easyfreesmileys.com/smileys/lol-046.gif

there is a big diffrence from a trader telling you what trade he's in then him telling you how he got there

so there is no edge your just in agreement with the market regarless how many times you see that same set up/edge your still in agreement with the market.

I must say I disagree. If you have a trading plan, that means you are actually using an edge.

An edge is not a Holy Grail system. It is just turning the probability in your favor. If at any time you may predict the next move with a better than 50/50 accuracy, then you do have an edge.

If you are consistently profitable, you have an edge.

That you realize it or not is of secondary importance as the main point is being profitable, and having an edge is a mean, not a goal. But you do have one, actuallly.

is that really an edge, everything you said just any trader can do if they do research, where talking a edge over the market, is there really one?

To me the edge is the ability to understand what is happening at a given time.

There are many way to look a chart, many tfs, many trendlines, fibonacci (for who use them), indicators etc.. All converging and diverging theirself.
Then we have many fundamental datas, one good one bad some good breaking news followed by a bad one then again a good data followed by a bad one, some bankster/politician say something, some other say the opposite.

It's a total mess, both technically and fundamentally.

The edge is found when the investor is able to grasp what is the underline reality, in other words what is real and what is fake.

But it's not something that last forever, you may have a clear vision of how's the situation today (edge), make your profit, but then tomorrow or the next week everything change and the situation must be figured out again.

the edge is the trader itself.

it doesn't necessarily mean a particular setup, be it a price action, pattern or indicator etc that gives higher probability of a successful trade.

it certainly doesn't mean win rate as many successful trader have win rate lower than 50%.

it's the trader that can turn a 30% or even lower win rate trading system into a gold mine in the long run, not many traders can do that for sure.

so instead of searching outside, one can search inside itself.

the edge is the trader itself and the trader is its own edge.

i agree 100%, most traders think they can get an edge over the market but what your saying it's not about the market but the traders themself and how they see the market

There are 3 things I read,

1. There is an edge. It exist.

2. There is no edge. It does not exist.

3. The trader is the edge.

They are all correct. You have the truth the way you want it to be.

....and as long as everybody keeps disagreeing, we still have a market........

With respect I feel that everyone has missed an important point here.Banks institutions hedge funds control and influence the direction of the market.
A private retail trader has zero influence, edge, whatever you call it, over the market at all. The market does what the Smart Money (Banks etc) do and as retail traders we must decide, by reading the actual chart, in different time frames, to see what they are doing.Then follow them with correctly placed stops and targets.
All indicators are lagging, because they depend upon price to tell anything.Yes they give certain confirmations of what has already taken place and so are useful if you need to use them.
Much better to learn what the market is telling you in the price. What do pin bars tell you? What do candle patterns tell you? Clue size of body, pins.
Why did the market change direction at a given point? Clue look left,use higher time frames. Which way is a market going ? Up down Flat ,no other choices are there?!
It takes a long time to learn to read the market correctly and even the big guys get it wrong often!
From an indicator point of view, I personally only use one and that is an 8EMA which, coupled with my reading of the price action gives me a reasonable idea of which direction price is going to move.Then with, again reading of previous price action, I look at the probability of where it might go, firstly against my trade direction (place my stop there) Then where I believe it will go, I place my target. I use fibonacci to help here combined with where price changed direction before (where all the buyers/sellers are waiting with orders sellers at the top of the move buyers at the bottom of the move)
Using fibonacci is an art in itself and there are many ways to use this tool, some work some do not.

So in summary learn to read the chart ,use as little as possible in the way of indicators,be prepared to make thousands of mistakes and learn something from every one. Be disciplined, focused, have massive belief, that you can be in that 5% or so that makes a living.
Above all PROTECT YOUR MONEY. That is the only actual rule I have. Hence, never ever trade without a sensible stop and never trade without a potential 1:2 costrofit ratio. Like any business, keep your overheads low and your profits high then you will never go broke.You will have losing trades, we all do, that is just life and human error none of us are perfect. Start small, learn in real money, 10 cents a pip is ok. Very different to a demo which becomes fairy land after a few weeks max! I hope this might help someone out there to just learn about price action, supply demand, support resistance, the language of the chart .
Happy Trading