You don’t need a special gift or a secret to become a successful trader. You need hard work, passion and intelligence to come up with the right ideas and a plan to learn trading.

Trading is not magic, it’s only about following rules. I personally think that it’s not difficult to come up with a trading system which makes money over time. But it’s very hard to not destroy the inherent edge by yourself. If you cannot execute the trading system well, you will not be able to make money.

I personally differentiate 3 levels of edges in trading:

1. Basic edge like trend following with risk management: You buy a stock, apply position sizing and risk management and follow the trend until it turns around. That’s an edge because over a long series of trades, your winners will be much bigger than your losers and you make money. The edge is very small, but still ok.

2. Stock selection edge: You can add another edge on the basic edge like selecting the best growth and momentum stocks. You can see that growth stocks can outperform other stocks strongly in a bull market. With tested stock selection criteria, you can increase your basic edge.

3. Timing edge: If you have rules to select the best market environment and improve your entries and exits, you can increase your edge further.

Maybe there are other levels of edges. Now you ask yourself about: What’s about personal edges like discipline? I don’t think that this is an edge. If you are not disciplined you cannot realize all other edges. It’s maybe an advantage in comparison to other traders, but it’s not an mathematically edge.

Der Beitrag 3 levels of edges in trading erschien zuerst auf Trading Blog - Julian Komar.