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Hey hey, what's up my friend! Have you ever noticed how some trades work out beautifully for a few weeks? You're up. You're feeling good. You're mentally drafting your resignation letter so you can trade full-time. Then suddenly... BAM! You give all your profits back. Sounds familiar? That's usually what happens when there's no edge behind your strategy. You might be thinking…
Cool, but that's not an edge. An edge (also known as expectancy) is something you do repeatedly over time that yields a positive outcome. Here's the math behind it... Edge = (Winning rate × Average profit) – (Losing rate × Average loss) If it’s positive, great! You have an edge. Otherwise, you’re just donating money to the markets. So, what does a trading edge look like? It's a trading system that generates a profit after hundreds of trades. Not 5 trades. Not 10 trades. But hundreds. And your trading system must tell you: 1. Which markets to trade 2. When to buy 3. When to sell 4. When to stay out Now… But what happens when you trade without an edge? You rely on luck. Your results are random. And you can't repeat your success. Think of it this way... The casino always has an edge over the players. That's why the house always wins in the long run. It doesn't matter if a player hits a lucky streak. Over time, the math catches up, and the casino takes its cut. And it’s the same for trading. If you don't have an edge, you are the player, and the market is the house. Now…
You beat it by BECOMING the house! By having a trading system that tilts the math in your favour. That's what an edge is. Cheers, Rayner "the-house-always-wins" Teo P.S. The goal isn't to be right all the time. It's to be profitable over time. Kind of like how my goal isn't to win every argument with my wife, but to make her listen over time. |