A Competitive Advantage in Trading Can't Be Bought

Cory Mitchell, CMT

I just started reading a book called Currency Kings by Ben Robson. It details the stories of how (mostly well-known) traders like George Soros made billions trading currencies.

The book starts out by talking about competitive advantage, and finding your edge.

Most people think of a competitive advantage as a strategy. That is only partially true.

Competitive Advantage in Trading is Not a Strategy

Strategies change, or become better or tougher to trade in some environments. So a strategy isn't a competitive advantage in and of itself. Rather, it is the trader's ability to adapt to changing market conditions, and to alter their strategies to those conditions, that gives them a competitive advantage. Competitive advantage is a personal trait...learned and forged within. Despite what the marketers would have you believe, competitive advantage can't be bought.

That is why some traders may thrive for a year or two (most don't ever thrive at all), but then blow up. They fail to adapt. Some programs or strategies you buy will work amazingly well, but usually, it is created by someone who hasn't traded very long (less than five years) and so they have no idea how to adapt the strategy/program when conditions change. They have no idea how things could change. It quickly goes from great to losing all your money. 

A Competitive Advantage in Trading is the Ability to Adapt

Having traded as my main income for 15 years, I still know there are MANY very tough market conditions I have not lived through. Yet, I am always thinking about ways to trade in these tougher environments in case they arrive, and attempt to build those ideas into my strategies/risk management. That's my competitive advantage...knowing that what works today may not work tomorrow, and planning for that.

In itself, strategy is a good thing, and along with discipline, it forms a solid foundation for trading. ...the system may work, although it would be difficult to predict for how long and to what scale [the future is different than the past...the past only gives us an idea of results, but future returns can vary drastically]. To win big, there needs to be more: a certainty that allows a trader to trade with a winning confidence. That certainty is a competitive advantage. — Currency Kings

This is why no one else can do the work for us as traders. We can get help along the way, but ultimately we need to build our own trading confidence. We need to build that knowledge base so we become confident in all market conditions, which also means being confident in NOT trading when conditions suck.

As the marketing for "easy money" and "just buy our software" becomes more pervasive, I must state that I don't know of anyone who has used one of these successfully for more than a year or two...and most don't last even a few months. This because trading is about ADAPTING, it is about psychology. Strategy is a part of it, but not the whole piece.

Also, most PAMM accounts (asset managers who take your money and trade it) don't last longer than a year or two either. They do fine for a while and then blow up/lose everything. When you look at a list of PAAM accounts or hedge funds you are seeing survivors (many who are barely surviving). What you don't see are all the funds that have disappeared into oblivion, but who first lost a bunch of people's money. You will see many of these so-called fund managers asking for funds, and touting their one or two-year track record. Be wary. 

Building and Keeping a Competitive Advantage

A few of my favorite books on building and keeping a competitive advantage are:

-Trading in the Zone by Mark Douglas

-Trade Like a Stock Market Wizard by Mark Minervini

-Think and Trade Like a Champion by Mark Minervini

-Van Tharp also has some good books on working on the internal aspect of trading, which will help with building and keeping a competitive advantage.

After some time trading, many people notice that when everything else in life is going well, so is trading. Trading results often, not always, reflect what is happening inside of us. Therefore, a competitive advantage can also be fueled by taking care of ourselves.

Hit the gym, eat well, meditate, get some coaching or attend positive/helpful workshops, sit and just think, take breaks from social media and technology, spend time outside. All these things help us feel better, which then makes us more mentally nimble and responsive to act on our knowledge which we should be expanding to learn about how conditions may change (researching history is a good start) and how we can adapt to changing conditions. This is a constant task, and successful traders adapt well because they expect and plan for change.

Also see:

Analyzing EUR/USD Volatility for Day Trading Purposes

Three Effective Position Sizing Methods for Forex Trading

By Cory Mitchell, CMT. Join me on Twitter @corymitc.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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