Trading edge, according to Mark Douglas, author of Trading in the Zone, is “nothing more than a signal of a higher possibility of one thing happening over another.”
This competitive advantage must be objective and quantitative, which means it must be supported by figures and statistics.
You’re probably sighing and muttering, “Ughh, math and spreadsheets!”
It’s hardly an advantage if you don’t know the likelihood of the outcomes!
You wouldn’t play big at poker if you had no idea how likely your hand was to win, would you?
Backtesting over a long length of time is required to have a reliable understanding of the probability of your trading strategy’s success under diverse market situations. And if the figures aren’t showing any consistency or significant probability of winning, you’ll probably need to tweak the indicator settings or entry and exit rules. Then you must run further sets of tests to determine if there are any improvements.
This would imply a lot of grunt labor, which would very likely get tedious. But if you put in the time and effort, it might pay off big time.You can learn from a mentor or trade coach in addition to building your own system rules and executing testing. This is not a shortcut, though, because you must conduct a study to determine whether or not their structure or technique has been demonstrated to work.
Furthermore, your ultimate goal should be to trade independently rather than relying on other people’s trade signals.
Journaling your market observations, such as a reaction to a specific news release or price patterns that emerge, is also an excellent exercise for honing your trading edge.
Knowing whether or not a setup has a high possibility of winning can relieve a lot of trading stress, even if the market is still volatile.
Having a track record that demonstrates long-term stability offers you the confidence to make trades that adhere to your system’s guidelines. More significantly, it provides some certainty that the approach can recover after a loss.
As a result, trusting your market advantage keeps you from trading rashly or taking vengeance transactions. It assists you in being disciplined in adhering to your strategy rules rather than succumbing to fear and greed.
