Good poker players only bet when the odds of success are in their favor, when they think they have an edge on the other players, and sticking with the poker analogy, if you do not know what your edge is, it's certainly certain you don 't have one.
What IS a Trading Edge?
A trading edge is simply a system or strategy for trading that makes it more likely that you will make money rather than lose it in the long run.
It essentially stacks the odds in your favor, just like poker players who bet when they have pocket aces, you want some strategy to filter out only the best opportunities for you to make money in the markets
Why Do I Need One?
You need something to stack the odds in your favor so you have the best chance of winning and making money in the long run. If you trade without an edge, you can not be certain if you will make money in the long run, and since our purpose as forex traders is to make money, you need to know exactly what combination of market factors is going to make you that money , ie you need an edge.
Does It Have to Have a High Win Rate?
No, a strategy does not have to win 80% of the time or more for it to be profitable.
There are many strategies that win only 30% of the time, but if when they win they win big, they will more than cover the cost of the losses and make you money in the long run.
For instance, if you placed 10 trades, and 7 of them lost $ 1,000. The remaining three winners all won $ 10,000. You'd be sitting on a profit of £ 30,000 – $ 7,000 = $ 23,000. So a strategy's win rate is not always the best indication of how good its edge is.
The best indication of how good an edge is is whether it makes money over hundreds, or thousands of trades, ie if it has a positive expectation.
How Do I Choose One?
There are many ways to skin a cat, and there are many ways to gain an edge on the market. Forex traders use all sorts of different fundamentals and technicals across all types of timeframes.
What is important is that you choose a strategy that resonates with you and that you can understand. It needs to be simple enough for you to be able to spot setups and trade off them.
If you are new to forex trading, you could either develop your own trading strategy with an edge, or you could purchase some tuition that teaches you a strategy. Do bear in mind that a trading strategy that you develop will have to be tested thoroughly to be certain it makes money, an undertaking that you may or may not have the skills to do.
Purchasing tuition or a strategy is a quick way to get an edge. However you should be wary of any strategy that guarantees profits. Losses are an inevitable part of trading, and those strategies or teachers who promise something too good to be true often are.
What Makes the Edge Work?
It does not matter what the edge is, it it based upon technicals or fundamentals. If the strategy were akin to a car, that car will only be as good as its driver. Ultimately it is you, the trader who will make the strategy's edge work or not.
If you can apply the strategy consistently over time, then you will give yourself the best chance of making money from trading forex.
Source by Mark S Tan