The goal of this story is to explain what is meant by a forex trading edge. I’ll give you some insights from my own experience of over twenty years trading on how to research, test, and trade your edge.
As forex traders, we define our edge as something we have seen in the market. This event has repeated frequently enough for us to think we can develop a trading strategy around it.
Our edge becomes the advantage we have over other traders.
So our trading edge will define what forex pairs to trade and how to trade them. How to trade them will include the entry, exit rules, rules that are triggered when volatility increases or decreases, rules that might trigger when something else unrelated to the instrument you’re trading occurs.
Ideally, we want to develop a strategy that can be executed trade after trade without hesitation. Did we lose money on the previous five trades? It doesn’t matter; we execute again when the next signal fires.
From these rules, we have a positive expectation that if this edge is traded consistently over the long term, it will lead to profits.
In plain English, that means that we are sure that if we place our order every time we see this event, more often than not, we will have a profitable strategy.
In the blog post this story is based on, I go into much more detail about the forex trading edge. I break down the steps you need to go through to develop yours. The key take away from the post is that developing a forex trading edge is only possible through developing a degree of emotional intelligence. Yes, thinking in terms of odds and position is critical but as important is being able to develop a strategy (edge) that is as compatible with your personality as you as with the strategy. That takes time and lot of introspection.