There are 3 key things you can do to get an edge. They are:
- Think Probabilities
- Eliminate Expectations
- Be Consistent
Think Probabilities
Because each trade is unique and has an uncertain outcome, we know it's not possible to predict how any individual trade will work out.On the other hand, if you have a trading method that gives you predictable and favourable outcome over a large number of trades - then you have an edge.
It's how gambling Casinos make so much money. They cannot predict the outcome of individual bets, but they know that over enough bets, the odds are in their favour.
Harmonic patterns are the best way I know at the moment of achieving a trading edge. Harmonic patterns are over 70% succesful. They have been proven for over 75 years - and recent systematic tests have shown success rates in excess of 80%.
You can read more on this at Trade the Probabilities. And more about harmonic pattern success rates here.
Eliminate Expectations
It is clear that there is no way to predict the outcome of any individual trade. But you can predict the outcome of a series of trades over time if you have a trading method that you know gives you an edge.If you accept that, then trading is really a probability or numbers game, and it is futile to have expectations of any individual trade. Expectations, intuitions and beliefs just get in the way and cloud your judgement - at the very time when you want to be crystal clear and objective.
And yet many traders convince themselves somehow that they "know" which way a trade will go. Call it intuition, belief or hope - these expectations only exist in your head, and are nothing to do with the real world and whats going on in the market.
In my trading, I try to not have any expectations or pre-conceived ideas about an individual trade. I just try to observe what happens and be "in the now".
There's only one way I know how to handle that.
That is to have a few clear and objective rules about how to enter a trade, and how to manage and exit a trade. That type of objectivity contributes to your trading edge.
You can read more about Trade Entry and Trade Management here.
Be Consistent
What do you do if you have a string of losing trades? Look around for another trading system? Try another indicator?The problem with being inconsistent is - you'll never give yourself a chance to find out if you have edge. And so your trading results will inevitably be - inconsistent.
When I lose in my trading, even many times in a row (I have lost more than 20 trades in row before now, and, probably will do so again), I stick with the same harmonic trading strategy. I don't change my trading rules or trading behaviour at all. My trading edge comes from the fact that I know probability is on my side, and the harmonic trading methods I use help me keep my trading losses low.
There are a couple of simple things you can do to help you become more consistent:
- Have a trading method that you are confident identifies "edge" opportunities
- Always determine your risk / reward is acceptable before entering a trade
- Be objective in your trading. Don't let emotion or intuition get in the way
- Have a set of rules for entering and exiting trades - and stick to them
