To become a successful trader it all comes down to finding a trading edge where the odds are stacked on your side.
The generally accepted belief is that our trading edge comes from mastering our trading psychology. Put it simply, that’s wrong because our edge comes from our ability to find unique patterns in the market that other traders are not capitalizing on yet.
This raises the question of how to find a unique trading edge?
The answer is to look at the price action distinctively, through your own eyes.
If you do the same things as other traders are doing, you’re not going to find a suitable trading edge.
Let’s say you observe your favorite stock has the tendency to rally during the final 30 minutes of the trading day. The next step you backtest this pattern to see if there is something you can profit from.
If the new pattern you have found has a positive expected return, you now can have the confidence to execute the trades based on your new edge.
The reality is that most professional traders look at the market different than the retail crowd. Over time, originality wins while conformity loses.
There is no secret or a magic formula that will instantly give you a trading edge. At the end of the day, it all comes down to your ability to think outside the box and hone your pattern recognition skills.
The ability to recognize new patterns is like the skill of a mechanical engineer, who understands how an engine works, performs maintenance, diagnoses malfunctions and performs required repairs. As in the case of the mechanical engineer who can assemble patterns of information into relevant diagnostic for the car, the pattern recognition skill of the trader works the same.
In summary, a unique trading edge comes from looking at the market distinctively, through your own eyes.