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How do you find your own trading edge?

Updated: Jan 10, 2022

Edge, you have seen it many times on this website. An edge simply means you have a trading approach with a positive expectancy over the long run. How you get that positive expectancy, that’s up to you. If you have been reading my blogs, you probably already know what an edge is, as I spoke about it before. However, it seems that it’s not clear for most people, hence this article.

In this article you will learn exactly what a trading edge is and how you can develop your trading edge. You will also get a sneak peek into our trading edge. As you know, we use mechanical trading and, in this blog, you will learn more about that.

Is there a best trading edge?

This is a question I often get asked, the answer is: yes, but it differs from person to person. The best trading edge is an edge that you understand, that has reliable data to back the edge up and that you can execute without making any emotional mistakes. That’s the best trading edge and that should be the goal of your journey: to develop your own trading edge.

So, an edge differs from person to person. Some people like a more discretionary approach and find their own edge that way. I like a more mechanical approach and that’s where my edge comes from. Where does your edge come from? If you don’t know that, you don’t have one.

Take some time to think about this. Really dive deep into your trading to figure out if you have an edge, what your edge is and what type of person you are.

How to find your personal trading edge?

You find your personal trading edge by realizing that trading is only about two things:

  • Knowing when the odds are in your favor

  • Trading only when the odds are in your favor and not making mistakes while doing so

This is a successful trading career; this is the goal. A lot of people make it way too complicated, but this is the true essence of trading. All the rest is extra. So, start by determining where you are right now. Do you know when the odds are in your favor? If not, work on that. Can you execute perfectly according to your rules, or do you also take trades that don’t have a positive expectancy? Do you make mistakes while executing your edge? Figure that out.

You find your trading edge, you find your best trading edge, by developing a method that you fully understand and that puts the odds in your favor. It can be any method you like: Elliot Waves, Wyckoff, ZigZag counting, Indicator based etc. Whatever it is, make sure it fits with your personality and that you fully understand it. Then, make rules about certain concepts and start testing them. See if there has been any edge in the past trading it. Most people skip this part, but let’s be real: if there hasn’t been any edge in the past, why would there all of a sudden be an edge now?

Start with learning different concepts and see if you like them. Stick with the concepts you like and understand. Ditch the ones that you don’t understand. You don’t need to know it all, you just need a few concepts. Most traders make the mistake of learning as much as possible, but you only need to master a few things to become profitable. Keep that in the back of your mind.

How to develop a trading edge?

Once you have figured out which concepts you like, it’s time to start building rules. Make them as clear as possible, so that you can test them. Testing is done through three stages:

  • Backtesting

  • Demo trading