How to Know If You Have No Trading Edge (AKA Gambling)

Many new traders don’t know what a true trading edge is, let alone how to actually develop one for themselves.

When you are just kicking your career off, it is tough to develop an edge if you don’t have a firm understanding of what it is. Before developing one, you have to first understand the common signs that show you are trading without edge, and then create a process to fix those issues. Let’s start by defining what trading edge is:

What Is Trading Edge?

Trading edge is simply being profitable over a series of weeks and months actively trading. The goal as a trader is to be a casino. Casinos know that as long as they play enough hands, they will win in the long run. Unfortunately, most traders are gamblers at the casino. A lot of new traders have trouble distinguishing a drawdown due to lack of edge, and a drawdown due to chance. Here are signs that you’re drawdowns are due to lack of edge:

Your Losses Are Way Larger Than Your Wins

Having losses that are much larger than your wins clearly shows a lack of an understanding of risk-reward in your strategy. A key component of any trading edge is managing risk properly, so making sure your wins are 3x or more than your losses will help push you forward in your career.

You ‘System Hop’

A lot of traders with no edge ‘system hop’, which means they bounce from strategy to strategy, asset class to asset class, and concept to concept. One day they may be wanting to swing trade only, another day scalping, another day trading small caps, and another day trading large caps.

Yes, you can be good at trading multiple things WHEN you are experienced and have progressed as a trader, but many new traders avoid developing a true edge with one system because they keep seeking out the ‘perfect’ system. Nothing in trading is perfect. You will have losses. No matter what system you are trading, you will have some losses. Accept that fact, pick what works for you, and develop an edge within one system without skipping around.

You Have Way Too Many Strategies

Even once you pick a system and stick with it, you need to only stick to 1-2 strategies in that system in the beginning. We will sometimes see students who finish our boot camp graduate and focus on day trading large caps. But then they make the mistake of trying 5 different day trading strategies a day instead of mastering 1 and just taking that set up first.

If you have a true edge, you have confidence in your edge. That confidence stems from having a clear focus on just a handful of strategies that work time and time again, so when you are at the screens you have a clear idea of what you’re looking for. This video lesson will show you how to narrow down your niche and find a strategy that works for you:

You Take Losses Personally

Losses are a part of the game. You have probably heard that over and over again, but if you get emotional over losses or take them personally, you lack a key part of your edge.  If you have a true edge and system, you know that any loss you take is just a part of the process and journey. With trading edge, you can distinguish between good trading losses and bad trading losses. Learn from your losses, take the lessons from them, and move on.

You Have Big Emotional Swings

One day you are on top of the world, and the next you feel like a worthless loser. Your trading days shouldn’t be like this. An edge is your ‘steady guiding hand’ through the markets. Following your edge will make sure that you take solid setups with proper risk-reward parameters, and won’t end up with debilitating losses. Your days should be steady and smooth. Controlling emotions is one of the biggest keys and steps to becoming a profitable trader, so mastering this step is crucial.

As a new trader, the path to profitability can seem long and daunting, especially with no edge. We have helped plenty of traders like one of our new students Islam here gain the consistency they need through proper, structured education. 

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Nick P Administrator