10 Ways to Find Your Trading Edge

Not sure if you have a definable trading edge? If you have to ask, you don't have one.

Traders face two mystical obstacles as they pursue their favorite discipline. The first is the holy grail, or that elusive strategy pointing the way to consistent profitability. Second is the market edge -- the special quality that lets them triumph over intense competition.

The market is a tough place to earn a living. The majority of profits go to a minority of traders. Members of this elite group utilize a definable trading edge at all times. In essence, this advantage is a point of view, scheme or plan of attack that separates them from the crowd.

Trading tutorials get you started on the path, but don't reveal the edge you need to survive in the markets. You must travel that road alone, and for a long time. Trading edges are often self-taught, because popular strategies draw the masses to similar methods and styles. This doesn't lead to success or survival over time.

Let's look at 10 tasks you need to accomplish in order to find your trading edge.

1. Build on your own observations. Catalogue the moves that catch your attention and deconstruct them. How did they begin, and how did they interact with the chart patterns? Have you seen this type of move before? What kept you out of the trade the last time it happened? These small discoveries are the key to building a sustainable trading edge.

2. Walk the path alone. It doesn't matter what other traders think, believe or act upon. In fact, their high-minded thoughts and ideas will undermine your game plan and force bad decision-making. In other words, avoid the chat rooms and stock boards at all costs. Then start figuring things out for yourself.

3. Keep it simple. Many traders look for a trading edge through complex mechanical systems. But it makes more sense to stick with the basics so you understand exactly why the last trade worked or failed. Over time, this self-analysis will evolve into unique rules, filters and tactics that match your trading style and skills.

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. At the time of publication, Farley did not have any positions in any of the stocks mentioned in this article, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to [e-mail]. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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