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Old 10-04-2010, 10:52 AM   #1 (permalink)
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What's Your Edge?


Obviously, everyone is in the markets to make money (although psychologist Van Tharp has argued that half the traders he counsels have a subconscious desire to lose. But for the purpose of this blog post, let’s look at people’s conscious desires).

So if everyone consciously seeks to make money, what makes you different? How are you going to outperform other market participants?

After thinking about this issue, many come to two conclusions:

1. In order to consistently win, you need an edge -- an advantage that others don’t have.
2. On some level, you need to be contrarian -- meaning you need to be willing to go against the crowd of people you’re competing with.

As always, you will find traders who dispute both of those points. Personally, I appreciate them, and value those ideas more and more.

In this post I wanted to focus on the first point -- finding an edge. What’s your edge?

Here are some thoughts I had on how to cultivate an edge, as well as what various traders use as their edge:

1. I generally think an edge is something you feel confident and comfortable thinking creatively about -- an area where you feel you could be an innovator or a thought leader, and a contrarian.

2. Personally, I increasingly use fundamentals and macroeconomics as an edge. I feel I have a better understanding of these issues than many traders I will be competing in the market against (at least I hope so! ), and I think I can think creatively about these issues to understand future opportunities. I'm comfortable being contrarian based on fundamentals when I think it is warranted -- even if that means being made fun of.




3. What else can you use as your edge? Many of the more mathematical, quantitative traders can use proprietary indicators and algorithms.

4. Mastery and comprehensive knowledge of a single indicator and/or market. In other words, focusing can lead to an edge.

Once you’ve found your edge, continuing to study and learn more about it, and incorporating it with other knowledge can help ensure that your edge remains sustainable.

What do you think? If you have any thoughts to add or questions on finding an edge, or if you don’t think an edge is needed to succeed, feel free to share your thoughts in the comments below.







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Old 10-04-2010, 02:20 PM   #2 (permalink)
 
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Hi Simit

Your question got me thinking about what I have learned to date in my trading. Thanks for that!

As a relative newb I guess I haven`t yet got round to developing an edge.Also being slow as a tortoise doesn`t help with that but sometimes has it`s advantages.

What I do bring to the table is patience,effort and perseverance,as well as always looking for ways to sharpen the knife...

Good question!

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Old 10-04-2010, 03:11 PM   #3 (permalink)
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hey x3m,

in my opinion it can be of use to understand what will NOT be your edge. in my case,

1. i've tried daytrading, and i've found it too stressful and not very enjoyable. anything that requires speed or intraday trading is not going to be my edge.

2. i'm not a hardcore math person, nor do i have advanced computer programming skills.
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Old 10-04-2010, 03:38 PM   #4 (permalink)
 
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my edge?

experience, iron will, love for the subject matter (=i.e. investing in my case, not trading ;-), my father who sometimes gives me some fresh money so i can try/buy more than i could with my own funds, my wife who doesnt stress me concerning losing/risking money anymore and keeps a lot of other stuff (like housework) far away from myself so i can concentrate on studying the markets + attending commodity events/conferences ...

hell, what crazy strange things come out if i allow my subconsciousness keep running, isnt it?

cheers ,
j.
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Old 10-04-2010, 03:47 PM   #5 (permalink)
 
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Quote:
hey x3m,

in my opinion it can be of use to understand what will NOT be your edge.
I c your point but personally I am at a stage where I can`t 100% reject any method.Whenever I`ve been dogmatic about anything in the past I`ve always found in hindsight that either I wasn`t 100% correct,or hadn`t fully understood the context LOL.

I do use indicators,support and resistance,price action,TOD,some fundamentals then throw it all in the mix.Not yet consistently profitable but am optimistic

Quote:
1. i've tried daytrading, and i've found it too stressful and not very enjoyable. anything that requires speed or intraday trading is not going to be my edge.
Strange I always thought of u as quick thinking..

Personally what I like about day trading is the results r quick,no watching paint dry...

Quote:
2. i'm not a hardcore math person, nor do i have advanced computer programming skills.
Join the club

Thanks
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Old 10-04-2010, 04:53 PM   #6 (permalink)
 
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Assignment: Look at the range on the last 21 bars on the 4H chart

highest high on the highest bar is: (you would be very safe to sell here) If it gets this high again
lowest low on the lowest bar is: (you would be very safe to buy here) if it gets this low again

This is almost a 200 pip range. it is for certain it is going to hit one of those prices before the other and that it eventually has to hit one or the other, it wont stay in the same range until the end of time. During those 21 bars count the number of times it retraced up and down somewhere in the middle (I dont really trade pivot points).

True eventually it is going to break out of that range either north or south it can only go 2 ways up or down. Having buy stops to the top, sell stops to the bottom balancing out your hedge either way, locking the drawdown in place.

Now you have all day all week whatever to catch orders going in both those directions within that range. You probably would do better to play the shorts closer to the top and the longs closer to the bottom. But sometimes you cant quite get in there.

Using larger lot sizes and doing one trade at a time could be optimal. An dof course there is the patience, You need to wait until your order hits its original TPT.

of course the last 21 bars the most important and just as good as using 34 for the more conservative trader.
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Old 10-04-2010, 04:55 PM   #7 (permalink)
 
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Sorry wrong forum. Aren't I silly?
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Old 10-04-2010, 07:38 PM   #8 (permalink)
 
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Hi Simit, you have to be creative. You have to try different things until you find what works for you. Keep in mind about 90% of FOREX traders lose I guess there all doing the same thing. So you have to think outside the box and try new stuff. That's how I see it, that's just me.
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Old 10-04-2010, 08:45 PM   #9 (permalink)
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Hi guys

My egde is a combo of a few things, but it boils down to-

Sentiment. I go against the crowd because they are almost always wrong.
(In fact, if you think about it, they have to be wrong most of the time, because only a majority of people can make a few people rich. A few people don't have enough money to make the majority rich.)

Fundamentals. While markets can be traded on technicals only, in my opinion (or at least what works for me) is to have a pretty good understanding of all markets. One should know what current events mean. When the Fed announces that the QE2 is about to set sail, one should know what that means for the USD. When the IMF debates intervening or letting debt holders take a haircut, one should know what that means.

Support/Resistance/Whole Numbers: I like to enter/exit near these 3 things.

And most importantly (if you can call it an edge)-
Really good money mangement, risk management, and discipline.

Cheers
Tek
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Old 10-05-2010, 02:38 AM   #10 (permalink)
 
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Quote:
Originally Posted by x3mtrading View Post
Also being slow as a tortoise doesn`t help with that but sometimes has it`s advantages.
The tortoise. He makes progress when he sticks his head out.
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