Trading Edge: 7 Steps to Success
What is the best trading edge formula? Trading is challenging, and having a plan is one of the most important enablers to success. This guide is about the seven most important steps to take. No matter if you are looking for an intraday trading edge or swing trading edge, this guide will help you to prepare your trading career most efficiently.
Transparency: We may get compensated when you click on links in this article.
1. Chose a Trading Simulator
This is the first step, really? That's probably the first question that comes to your mind once you read this article about trading edge. And the simple answer to your question is yes. No matter if you plan to day trade, to swing trade, or to invest. Having a trading simulator at your fingertips is the most crucial thing in the world. No matter if you plan to start with trial and error, following trading signals, the best investment newsletters, or if you plan to let a robot execute trades for you, the simulator is your starting point.
2. Consider the Importance of Psychology
Trading is 90% based on psychology, and once you funded 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, with a bang, your first account is gone. These days nearly all brokerages out there offer a simulated account. Some may ask to fund the account with $1,000 or so, but it is worth it. You gain access to high-quality trading tools, real-time data, charting, Level 2 quotes, and reporting in exchange.
3. 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 trader 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.
4. 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.
5. 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, 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 to not changing a strategy too early.
6. 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 being different than other traders. All those people who jump right in are those you get your money from. Your edge will help you to be on the right side.
7. Be Patient
The transition from being a paper trading 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 start 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 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.
A trading edge is an advanced concept of preparation applied to crate an advantage among other market players. The higher the degree of improvement, the more meaningful and efficient the edge will be.
A demo simulator is the best place to test your trading strategy. You may have read a trading edge book and found some nice trade setups illustrated. You also may feel in a rush to invest your hard-earned money immediately. But again, the simulator is the place where you want to be. It is upon you how long you use the simulator, but here is one fact you should always be aware of. You should start real money trading at the earliest when you are profitable in paper trading over a more extended period.
Once you discovered a meaningful strategy, please write down the exact rules and apply them during real market hours. Forget about investigating charts that are already complete once a day is over. Trading in real-time is a fundamental difference. The biggest pitfall when looking at historical charts is that the chances are that you only see what you want to see. Trading in real-time with paper money is the best way to determine if the strategy is right for you.
- What is your winning percentage?
- What was your biggest draw-down?
- How many trades did you make, and how often did you trade?
- How did you feel about the results each day, and did you always follow the rules?
If you have any concerns, extend your paper trading practice. Trading-results and emotions may not be what you expected. It is okay if you find out that day trading is not right for you.
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.