The True EDGE in trading

So everyone is supposed to have an edge in order to win in this stock market game, right?

But what edge are we talking about here?

In general, when people talk about edge, they often refer to statistical advantage.  We will call this type of edge “technical edge”.

But to me, technical edge becomes zero edge if you don’t have the discipline to follow it.

I know I repeat this again and again but I think it is worth repeating because it is my opinion that “being discipline” is the true edge that allows you to beat the other 90% of the trader in making it.

In other words, you can be very proficient with the following:

– Chart reading that included your understanding of all popular chart patterns such as head-and-shoulder, cup and handle, double top, double bottom, flag, triangles (symmetrical, ascending, and descending), wedge, gap, triple top, triple bottom, and of course candlestick chart patterns.

– Technical analysis that included all kinds of oscillator and momentum indicators.

– Other chart & technical analysis that I did not mention above

And you still have no edge if you allow your emotion to dictate the better half of your trading decision.

But discipline doesn’t just drop on your lap without effort. You have to work at it.

To begin with, you need experience.

If you are a trader, either as a beginner or intermediate, you are already on the path to gaining experience.  However, experience alone will do nothing for you unless it is being reviewed and analyzed by yourself.  By reviewing your trades, you learn to become a witness to your own trading decision.  But to be a true witness of yourself during trading, you need to be self-aware.  Instead of living in your own fear or greed, you learn to stand back and watch yourself being in fear or greed.  If you can possess this type of self-awareness to witness your fear and greed, you will have the self-awareness to “choose” not to let it interfere with you trading plan.

Below is an example of your NOT being aware of your own emotion:

“FUCK! Why the FUCK did the stock have to go against me after I bought!  It HAS to go up.  I KNOW it!  I’m buying some more here!”

Below is an example of your being AWARE of your own emotion:

“Fuck! I may be wrong again. I HATE being wrong. Look like price action is going to hit my stop soon.  FUCK!  Oh well, moving on.  I will watch to see how this stock behave in the next couple of days.  I will take the next buy setup signal if there is one.”

When you are aware, you are not living inside your fear, anger, frustration, and greed.  That mean you still have the ability to choose to side-step your fear and greed and stay the course of your trading plan.  But to get to this level of being able to side-step your emotion, you have to climb THE mountain.  That is, the mountain of self-awareness.  And climb you will if you are commit to the path of trading well.   In time, your constant awareness of your emotional reaction and your effort to bypass these reaction will become less of a struggle and more of a habit.  And before you know it, your habit is your discipline.  And following your trading plan will become second nature.

All the effort in gaining self-awareness not only make you a better trader but a better person in life.

This is how discipline becomes you and this is how you become discipline.

You see, the true edge in being a winning trader is not the technical edge, it is your ability to commit to your risk management and trading plan because you possess self-awareness to bypass your own emotional hindrance.  We are all human; therefore, we will have our emotion.  The key to avoid living inside your emotion is your self-awareness.  And because you are self-aware, you have the power to make a choice.  With practice, your choice of following your trading plan despite your fear and greed becomes a habit.  Viola!  You now have discipline.

The road to true edge only appear to you when you are ready.  You can be reading this and agree wholeheartedly; but if you are not ready, this information will be forgotten the next day when you are staring at your loss with anger or fear.  If you are ready, you will understand what you need to do to gain this self-awareness.  In my case, I stopped buying books on trading and took up Tai Chi and meditation.

Good Hunting!

ps. Oh yeah! If you are ready, you can also do what Yogi and Boo Boo does.  Start trading small lot so you can learn to take small losses.  In time, taking small losses become a habit.  Then progress to move up the ladder by increasing your lot size in small increment to acclimate yourself.  This is the same technique in martial art training when beginners are forced to spar with partner to learn to acclimate to the punches and kicks coming at you.  You know your partner is not going to hurt you bad so you begin to put aside fear and learn to dodge and defend yourself with proper martial art techniques.  This is the same principle in trading.  You know you are not taking big loss so you learn to put aside your fear and greed and learn to apply proper risk management and following your trading plan.



Categories: Trading philosophies and thoughts

Tags: , ,

6 replies

  1. Nicely put. Enjoyed your explanation. Trade your plan, not the market!

  2. Cool as a cat. Are cats cool?

    Thanks for the edge thoughts.

  3. Good stuff. I enjoy reading your posts as I do most peeps here on iBC… It is nice to know when making that crucial decision whether to roll that dice and hit the buy button in the middle of a global crisis, there are others going thru the same emotional roller coaster..!

    • Hello Fasteddy, (I love the movie “The Hustler” as well.) Thanks for the feedback. Follow your trading plan and your risk management system; everything else, including your emotional reaction, is just all noise…

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