The 7 Commandments of Trading: Trade With Edge

trade with edge

This week we will be doing a blog series on the 7 Commandments of Trading. Here are the 7 commandments:

  1. Trade With Edge
  2. Trade Robotically 
  3. Trade the Ticker, not the Company
  4. The Market Always Punishes Slothfulness
  5. Be Humble, Or the Market WILL Humble You
  6. Scared Money Doesn’t Make Money
  7. You Chase, You Die

Today we will talk about trading with an edge:

Trading With Edge vs Gambling

It is very easy to treat trading like gambling. Gambling is addicting by nature, and many new and inexperienced traders fall victim to this addiction. Just like in a casino, it is possible to make money in the stock market without much effort. But you will not make money consistently and will end up losing money in the long run. 

The only way you can make money in the stock market is by trading a proven system with an edge. Doing anything other than this is just pure gambling, and will result in you losing all of your money. In order to consistently profit in the stock market, you NEED to be trading a strategy with an edge.

What Does Edge Mean?

You may be confused by the term edge. The term edge simply refers to trading a strategy with a positive expectancy. This means you know you will make money, in the long run, using the strategy. If you take 100 trades with this strategy, you KNOW you will make money. 

Be the Casino

Let’s go back to the casino example: The casino has an edge. All of the various gambling games, the house will almost always win in the long run. Slots is a very low probability game. Craps, poker, is the same thing. There are a few exceptional players, but usually, the casino kicks these people out so they don’t wipe them out!

This “edge” is the reason why casinos are a business. The players with no positive expectancy, the casino attendees, win once or twice and think they can do it again. But since they don’t understand what “edge” is, they always lose all their money in the long run. They don’t realize making money a few times doesn’t mean anything. 

How Do You Know if You Have Edge?

Simple: Take 50-100 trades. Are you making money at the end of it? If not, you don’t have an edge. So many aspiring traders fail to make money because they trade a strategy with no edge.

The tough part about trading is that you can actually make money trading a strategy with a positive expectancy. So many traders mistakenly believe that a strategy works because it makes them 

Here’s the key take away: Track your data, look at the big picture results, and figure out if you have edge or not! If not, get to work! Refine your strategy, find a new one, change it up.

Look out for tomorrow’s post on how to trade robotically and without emotion!

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