People often wonder, “What does it take to become a professional trader?”
Learning to control emotions? Having a huge account? Getting more screens?!?
Well controlling your emotions is certainly important, unlike the other two options, but this still comes under the one thing necessary to be successful in trading.
Having an “Edge”.
An “Edge” is a statistical advantage which essentially means that no matter how long you trade for, as long as you remain consistent in applying your “Edge”, you will make money. Guaranteed. It’s quite simple.
Either you have one or you don’t. If you don’t have one, you don’t make money. If you do have one, you will make money (in the long run). It really is as straightforward as that.
So I guess you are wondering, if it guarantees success, why are most traders not successful?
Well partly because they trade without an “Edge”, but also, because when they have an “Edge” they are unable to apply it consistently due to their emotions or lack of a trade plan.
So that being the case, the real question is, how does a trader create an “Edge”?
The good news is there are a number of key principles required for creating an “Edge” and here I am going to share them with you.
A double zero roulette gives the House an “Edge” of about 5.4% over the player. The secret of the House is they are NOT gambling, they will ALWAYS win in the long run. Maths dictates this.
Professional traders don’t gamble. They replicate this statistical advantage by adhering to the following principles:
1. Rules
Professional traders can write down their trade plan and articulate it without deviation. The reason for this is that an “Edge” only works if it is applied consistently.
Emotions are the nemesis of consistent application of an Edge which is why you will often hear of the importance of controlling your emotions. Inversely, rules are the best friend of any “Edge” as it allows for consistent application and repetition.
2.Well-defined Entry Signal
3.Well-defined Exit Signal
The above principles are important for an “Edge”. Why? You guessed it – consistent application!
If your entry and exit signals are ambiguous then it is impossible to consistently apply your “Edge” to the markets.
4. Pre-determined Long or Short Bias
This is important, not for consistent application, but to ensure you have a higher probability chance of the market going in your direction.
There is no point in having a very small “Edge”, in say Risk: Reward, if 99% of your trades are failures.
Often this principle is simply implemented by “trading with the trend”.
5. Risk:Reward Ratio
Inversely to principle 4 – there is no point being correct 99% of the time if that 1% of the time you lose you wipe out all of your profits and then some.
Professional traders will almost always look to make more than they can lose on a given investment or trade.
6. Money Management
Money management is key as an “Edge” has to be allowed to play out over time.
Even if you have an edge which will make you money every 100 trades, if you have poor money management, you will lose your account before your Edge even gets a chance to work.
7.Consistent Application!
This is so important that the first 3 principles are all designed to help implement the last principle. Without consistent application an “Edge” really isn’t an “Edge” at all.
Why not join us in the Portex Academy Live Rooms to see exactly how we implement these principles and create an “Edge” in the Live markets!
You can sign up for a FREE account and read more informative articles like this and take a FREE trial of our Online Day Trading Rooms, run 3 times a day Monday – Thursday. www.portexacademy.com
The Rubik’s Cube is not just a forgotten toy from the 80’s. The fact is that it’s even more popular than ever before. You can play with this great puzzle on this link.
