ð STEP 3 to MASTER TRADING: WHATâS YOUR TRADING EDGE? ð
The topic of trading edge in the market is highly underrated, in my opinion. Thatâs why today I propose to discuss it, and I hope it can help you to shift your perspective on this matter. So letâs think about this together. What parts does your trading edge consist of?
ðĐ THE BIG FILTER
For me, the first part of any trading edge is its filter. So your trading system tells you very clearly when you should NOT be in the market. It protects your capital - both $ capital and emotional capital - from poor market conditions, and low-quality and low-probability setups. And what it actually means when you execute your edge is that most of the time, you will stay out of the market.
ðĐ YOU WILL âMISSâ THE MOVES
Thatâs really tough topic for many of us, me included because very often youâre looking to enter the zone, but the price can either turn right before tapping into it or tap and doesnât give any confirmation for entry. And that could be very emotional. However, the fact is simple - such âmissedâ moves are also part of our edge. Why? Because if you tested one set up, one pattern, and you know itâs profitable the way it is, then you need to execute it the way it is. Keep in mind, when I say profitable, I donât mean crazy profitable. Today, with access to prop firms, we need a very low % of profitability to earn for living. We can scale the $ amount relatively easily if we are profitable consistently.
So again, we donât need every move, and we donât need the whole move. We just need some part of some moves - and a good edge will make consistent profits out of this.
And only then, if you want, you can tweak, refine and step by step make your system even more profitable.
ðĐ THE PATTERN
This part is actually your entry pattern. Notice again, this is just a part of your system, not the whole system. If you really understand this, youâll be much more relaxed in the market. This part should include a written checklist for your entry - just like a pilot has a checklist before his flight. A checklist, in its turn - is a part of your trading plan, itâs the essence of your trading plan. You will refer to it before every trade.
ðĐ MANAGEMENT, LOSERS AND BREAKEVENS
When you executed your edge in the market, now you need to manage the trade accordingly, based on your checklist. So take partials, accept breakevens and losers. If you entered into a high-quality setup, which turned into a BE or a loser - itâs the part of your system, and usually, it doesnât make sense to overthink it and try to find flaws in your system. But thatâs flexible, and of course, you can analyze what happened, and maybe even find something to tweak, but very often a loser is just a normal loser, and breakeven is just a normal breakeven.
ðTo recap, any edge will include:
ðđâmissedâ trades
ðđtrades, where price didnât tap into your entry order just a bit
ðđtrades where you were stopped out for several pips and price then went to profit (if it repeats constantly, maybe consider having a bigger stop loss)
ðđfull TP
ðđpartials
ðđlosers
ðđbreakevens
ðIf youâre still here, hereâs a BONUS trading hack for you. Ask yourself and try to answer honestly this question: âDuring all the time Iâm trading, what is the maximum amount of days in a row, when I followed my rules to the T, honestly?â You will be surprised, but the usual answer is 3-10 days. Yes, people can trade for 2-3 years, but never manage to follow their rules (whatever they have at the moment) for at least a month in a row. It all leads to catastrophe, of course.
Thank you for your time! If you want to see more educational materials, please hit the BOOST button and leave your comments below.
Dima
ðĐ THE BIG FILTER
For me, the first part of any trading edge is its filter. So your trading system tells you very clearly when you should NOT be in the market. It protects your capital - both $ capital and emotional capital - from poor market conditions, and low-quality and low-probability setups. And what it actually means when you execute your edge is that most of the time, you will stay out of the market.
ðĐ YOU WILL âMISSâ THE MOVES
Thatâs really tough topic for many of us, me included because very often youâre looking to enter the zone, but the price can either turn right before tapping into it or tap and doesnât give any confirmation for entry. And that could be very emotional. However, the fact is simple - such âmissedâ moves are also part of our edge. Why? Because if you tested one set up, one pattern, and you know itâs profitable the way it is, then you need to execute it the way it is. Keep in mind, when I say profitable, I donât mean crazy profitable. Today, with access to prop firms, we need a very low % of profitability to earn for living. We can scale the $ amount relatively easily if we are profitable consistently.
So again, we donât need every move, and we donât need the whole move. We just need some part of some moves - and a good edge will make consistent profits out of this.
And only then, if you want, you can tweak, refine and step by step make your system even more profitable.
ðĐ THE PATTERN
This part is actually your entry pattern. Notice again, this is just a part of your system, not the whole system. If you really understand this, youâll be much more relaxed in the market. This part should include a written checklist for your entry - just like a pilot has a checklist before his flight. A checklist, in its turn - is a part of your trading plan, itâs the essence of your trading plan. You will refer to it before every trade.
ðĐ MANAGEMENT, LOSERS AND BREAKEVENS
When you executed your edge in the market, now you need to manage the trade accordingly, based on your checklist. So take partials, accept breakevens and losers. If you entered into a high-quality setup, which turned into a BE or a loser - itâs the part of your system, and usually, it doesnât make sense to overthink it and try to find flaws in your system. But thatâs flexible, and of course, you can analyze what happened, and maybe even find something to tweak, but very often a loser is just a normal loser, and breakeven is just a normal breakeven.
ðTo recap, any edge will include:
ðđâmissedâ trades
ðđtrades, where price didnât tap into your entry order just a bit
ðđtrades where you were stopped out for several pips and price then went to profit (if it repeats constantly, maybe consider having a bigger stop loss)
ðđfull TP
ðđpartials
ðđlosers
ðđbreakevens
ðIf youâre still here, hereâs a BONUS trading hack for you. Ask yourself and try to answer honestly this question: âDuring all the time Iâm trading, what is the maximum amount of days in a row, when I followed my rules to the T, honestly?â You will be surprised, but the usual answer is 3-10 days. Yes, people can trade for 2-3 years, but never manage to follow their rules (whatever they have at the moment) for at least a month in a row. It all leads to catastrophe, of course.
Thank you for your time! If you want to see more educational materials, please hit the BOOST button and leave your comments below.
Dima
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