Did you ever ask yourself if your edge is truly as strong as you think?
The edge is the most important thing for a trader — it represents the potential profitability of his trading.
The trader can recognize his success by the strength of his edge and how he manages to keep it unchanged.
Despite the ferocious competition and obstacles that may appear insurmountable by most, the successful trader has found a true edge that permits him to be proficient in the market.
But to know if that’s enough and long-lasting, it is firstly needed to determine its objective value.
In this article, we will try to show a clever way to calculate the strength of your edge over the market participants.
Is the strength of an edge measurable?
Determining the actual value of an advantage (the edge) within a given environment is not easy.
To this date, it seems impossible to have a definite, unchanging value about the strength of an edge.
But this doesn’t mean that we can’t work out an idea of it. After all, trading itself is not having absolute proof about the future — it’s all about having an idea of what is going to happen.
A given event in the universe has infinite variables that prevent any assumptions from being always valid. Nothing can ever be absolute — its integrity is finite within the boundaries of the current relative knowledge.
Math note: Mathematicians would say that anything is true only for the relevant axioms.
Following these assumptions, we can state:
The degree of efficiency of an edge originates from the current known characteristics of its relative environment.
In other words, the edge results in the understanding and control of the weaknesses and strengths of the environment in which is applied.
The efficiency of the edge is directly proportional to the correctness and quantity of both understanding and control.
Try to repeat the three last statements until you get them right.
Final consideration
The strength of your edge is the quantity of knowledge & control you have over the environment, this last being a specific market, a process, a type of event, or even yourself.
A strong edge takes advantage of the weaknesses in the environment and enhances the strengths of the trader.
To know how much strong your edge is, you need to collocate it in the environment — is it part of the weak band or the dominant band of the environment?
In the following, we will examine the theoretical attributes to determine the strength of your edge: measure it according to how much it is to the dominant, i.e winning band.
Furthermore, we will explore an easy but incredibly efficient practical method of verification.
IMPORTANT: do not confuse the edge with the trading strategy or method. To grasp better what an edge is, it is highly recommended to check out this article: What Is A Trading Edge & How To Develop It?
Theoretical attributes
Uniqueness
Uniqueness is one of the main attributes of a profitable edge; it is true because profitability mainly comes from the principle of not doing what everyone is doing.
The vast majority has such a large amount of weaknesses, so small amount of virtues that being unique is the very first step to winning. It is why unique people are the ones who are successful — because they are not part of the majority and don’t get influenced by it.
Moreover, as a successful trader, you know that being common or using common methods and strategies will classify you into the weak band of the environment.
When your edge is a set of unique knowledge and capabilities, far from herd perception and commonality, the odds of success are significantly higher.
Can you consider your edge unique?
Source of conscious, unbiased thinking
As we stated, being part of the majority means suffering from the pain of being mediocre.
You are not successful with a mediocre edge.
In trading, more than 90% of retail traders lose money. If your trading edge makes you think like the 90% of traders, it is not strong enough to dissociate from that losing majority. Verily, it makes you part of it.
When the edge pretty much means listening to random people and inheriting their strategies and TA, it is almost certainly a weak edge. Moreover, a bias-based one is a source of loss and greed.
A strong edge does not need any social media influences to work: it is valuable regardless of what happens in the environment.
When the edge is a source of conscious and unbiased thinking it is powerful because the trader is privileged by freedom of mind & behavioral control.
Is your edge a source of conscious and unbiased thinking?
Efficiency
A strong edge makes you concentrate on truly crucial levels in the market and take advantage of them.
You can verify its efficiency in this matter by analyzing the results every time you traded the levels that you considered important.
It is CRUCIAL to distinguish the “bait” levels from the real levels. Remember that most markets are just a competition between market makers and retail traders.
When every retail is absolutely convinced that the market is going towards a direction from a given level, very likely the makers are going to eat up all that liquidity and trade in the opposite direction.
A retail trader should listen very little to the retail world; the successful trader does not get inglobed into it
If your edge makes you concentrate on all the retail “hot levels”, that edge is contaminated by the herd, because it has been developed based on its distorted perspective.
Has your edge been demonstrated to be efficient?
Versatility
A trader is usually provided with an edge that works best in a specific environment. Even the market maker’s edge is often dedicated to a single market.
But when the edge is applicable in various environments and its value stays unchanged — that is the moment when you realize you have an exceptional edge.
Versatility is a powerful attribute because it amplifies the reach of your advantage and it gives you freedom of choice.
The most powerful edges are developed from universal laws and principles because they spread their strength to the maximum extent.
If your edge works on principles of supply and demand, action and reaction, objective value, and most importantly, self-discipline and consciousness, you have powerful versatility on your hands.
Can your edge be applied to various environments?
Practical verification
After conceiving an idea of the strength of your edge by justly answering the four questions at the end of each paragraph, you can test your edge in practice to establish the correctness of your idea.
The Sample
One of the most effective ways to test out your edge as a whole is to develop a detailed sample of a certain number of trades.
In this sample, you will be writing all the details that constituted your trading process: your emotions, your physical condition, the reasons for each trade, the chosen environment, etc.
The righteous number of trades for a good sample is between 20 and 30 trades.
Let’s take an example of a 25 trades sample
These could be some of the components that you can write down for each trade, to be as detailed as possible:
• Pair/Asset/Environment interested
• Stop orders used
• Risk-reward ratio
• Leverage used (if any)
• Degree of discipline maintained
• Reasons for the trade
• Mental state
• Physical state
• Emotional state
• Fidelity to the strategy
• Result of the trade
• Considerations
• Reactions
With this method, you can verify the efficiency of your edge over the market, but not only that: you can spot its strengths and weaknesses, improve what you need, enhance what is profitable.
If your edge is truly strong, your sample will show righteous management both of yourself and your strategy, as well as knowledge & control of the market.
The ultimate proof is the concrete results that you’ve brought home at the end of the sample.
In conclusion
Being able to visualize the strength of your edge over the markets is very important to collocate yourself as a trader.
As for now, it is not possible to reach a definite value to determine how strong an edge is, because that would require an absolute value in a world of infinite variables.
However, it is possible to have an idea that tells if you’re part of the winning band of the market, or if your edge is just another weak illusion caused by a distorted perception.
Verifying the strength of your edge means individuating into it the most effective attributes of a successful edge, then analyzing it into practice and testing its efficiency over time.
When the edge enhances a dominance over the market in the form of behavioral, informational, or analytical matter, the trader can be classified as truly successful in his trading.
Everything described in this article has the sole purpose of being informative and providing general information. The author has no intention of providing any financial advice, legal advice, or tax advice. Do not rely on this article to make investment decisions. Seek professional help before making any such decision. The author does not take any responsibility for loss or damage of any nature. The use you make of the information contained in this article is your sole responsibility.