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.