Trading The Financial Markets With An Edge.


I have lost track of how many times I’ve seen a “trader” on a trading forum asking the other members whether they should close a trade that has gone badly wrong.  The trader has added into a position as it has gone against them, throwing caution to the wind, hoping the market will turn around at any given time.  Stories of life savings going up in smoke with one failed trade are not uncommon.  This may sound unbelievable but it is a common occurrence.

On the flip side.  A professional trader can sit down for an evening meal with their partner after losing millions in a day and the partner would be none the wiser.  Quite the opposite of the previous sad story but if a trader has faith in their edge they know the money can be won back – and some – another day.

Society teaches us to “never quit” and “try harder” but a professional trader must learn to abide by a different set of rules.  Always quit when a trade is going wrong (hitting the stop loss) and call it a day if you have x losses in a row instead of trying to win back the money.  There is quite a difference in how a pro trader approaches his job as opposed to the typical working man and not everyone can adapt to this.

So what has this got to do with trading Forex with an edge?

The trader that bets the ranch on one position is not trading an edge.  They are rolling the dice and hoping for the best.  The pro trader knows that even after a few losers in a row the edge will prevail and many winners will come.  Trading an edge is about executing the orders every time your pre defined scenario arrises without any hesitation whatsoever .  This can be very difficult to do after a long series of losses has chipped away at your confidence.  It is imperative that traders fully understand their system and have an understanding as to the draw down they could experience.  I show how the markets can be traded with an edge at this Forex trading blog. Back testing is a good way to gather this data and even though it is not the perfect solution would surely benefit many novice traders in gaining an understanding of their supposed edge.

I can’t be bothered with all of this… I just want to make money trading!

This is a very common approach and a lack of discipline combined with not enough preparation (back testing etc) can leave the novice trader in a losing trade, adding all the way down and wishing they had taken the time to do things properly.

Take a look at the following chart and imagine our novice trader had just bought a heavily leveraged position at the swing high.  Every few pips the price drops the trader is adding more buy orders until eventually the inevitable margin call comes from the broker… A very common scenario.


Trading an edge is the only way to find any kind of sustained success in the world of trading and hopefully the information presented in this post will help you understand why.  Don’t be like our novice trader and bet the ranch on one trade.  If you decide that trading is for you then do yourself a favour  and gain a deep understanding of your edge using a practice account and prove to yourself what you are capable of doing.  Better to preserve capital while learning how to trade the financial markets.  Don’t allow yourself to become a liquidity provider for successful traders who are trading their edge.


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