Trading Edge

Trading is 90% based on psychology, and once you fund an account with real money, the probabilities increase that you start trading without a concept, without testing, or even with overtrading. The spiral begins: you lose some money, increase the risk to make that money back, lose more money, go all in, and then, your first account is gone.

This is why you need a trading edge.

Learn the Trading Platform Inside Out

Now, you have a trading simulator, which results in low monthly costs. You successfully set the milestone all new traders should start with. A trader edge is needed to make money. It is a process that will need time to find trading edges. In the short term, you need to practice your trading software.

That’s true even before you start to come up with trading strategies. The more frequent traders want to trade, the more excellent trading platform skills will help trade profitably. Especially day traders need to act fast. Even fractions of seconds can make a difference.

It will be most efficient if you practice trading with the trading platform you want to use in live trading. Two prominent brokerages allow you to use a real-time demo account with a small account. TradeStation requires $2,000 and E-Trade $1,000 in your account to get real-time market data for free.

They do not have monthly costs; it’s basically like parking some money in a brokerage account to learn how to gain a trading edge.

Find Your Trading Candidates

Now, you have your trading strategies, and you know exactly how to use your paper trading platform. The next step is another key factor. Find the right candidates to apply the strategy. You need to find the stocks before everyone else to get the best trade executions.

A stock screener like Trade Ideas will help you to find the right stocks fast. Use your charts to confirm that the stock screener results meet your criteria with visual confirmation.

Make Notes

Let’s say you developed a set of 10 trading strategies. Once start trading in your paper trading account, you will begin to collect a statistically relevant data pool. Make notes for every single trade. What was the reason for the entry? Why did you close the trade, what was your profit, etc.?

Do not hesitate to write down your observations for the trades for later review. Use a simple and yet cost-efficient tool. If you have Microsoft Excel, that’s fine. If you like to use Google Sheets to track your trades, that’s perfect. Just do it. After the first month or 100 trades, you should check what trading strategies are the most profitable ones. You may drop the one or the other or fine-tune it.

Make sure not to change a strategy too early.

Rinse and Repeat

Be patient while developing the trading edge. It takes time to get better and better. You will learn a lot from practicing. Trading is a marathon and not a sprint. New traders often want to hop on the train right away. Make a difference and start edge trading once you have your trading edges perfected.

Make sure to trade based on the plan. Define the plan, trade the plan, and grow as a trader. Make a difference by being different than other traders. All those people who jump right in are those from whom you get your money. Your edge will help you to be on the right side.

Be Patient

The transition from being a paper trader without an edge to a well-experienced trader with an edge is challenging. It is worth investing the time, and once you see good results over a period of at least six months, consider starting trading with real money and low risk.

That means that you should apply money management rules and mainly optimize position sizing to start with low risk. Once you have found your trading edge, exponential profits are possible. It can happen that you are not profitable trading on paper.

If that is the case, then it is a clear signal that the trading style and method you have chosen is not right for you. This may not be what you wanted, but the key aspect is that you have protected your capital.

Conclusion

It is all about your ambition and the realistic way of setting goals. We are all unique, and there is a way for all of us to make money in the markets. The challenge is to protect your money as long as you discover your preferred way to trade and invest.

Alexander Voigt, CEO
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Alexander Voigt is the founder of DayTradingZ, was a regular contributor to Benzinga and has been featured and quoted on leading financial websites such as Investors.com, Capital.com, Business Insider and Forbes.