In trading, everyone refers to an edge—what is it?

A recent chat with traders episode 231 with James Chen provided an acronym for realising an edge in trading. It was ASIA standing for Access, Speed, Information and Algorithm. Mr Chen’s trading routine is far different to my own. He lives in Australia but stays up all night to enter an Aussie dominated index during the USA trading hours.

However, I think “ASIA” has relevance in all forms of edge defining trades.

Access to me as an intraday trader is volume and, therefore, volatility during my trading day. A principal reason I’ve chosen currency pairings as these fit the UK workday perfectly. I have early access to the European market, with the UK opening soon afterwards. By early afternoon in the UK, the American market starts. I’ve found that concentration on a few markets is better. Indeed I concentrate on the British pound / Japanese yen. My alternative is the Euro / Japanese yen. Why so limited in market choice? Rhythm. I can more easily find the flow of a single market currency pairing, make fewer mistakes and trade more aggressively when appropriate. That, I feel, is an edge.

Speed means different things to different traders. For me, it refers to the speed of entry. But, of course, that is affected by our choice of broker. Trade spread, strong direct market connection and quality of market interface are broker factors that help or hinder. If the broker helps in each of these, it contributes significantly to an edge.

Information as a technical day trader is chart based particulars. I always want to trade the chart, not a bias. An example is that many trading software provides a sentiment biased target. A sentiment target influences direction. As we’re trading a different timeframe and a different trend, such an indicator would be disastrous. I’m constantly aware of market information that can move prices wildly. Other than that, to be in my information bubble is an edge.

More relevant than an algorithm is a term automatic. I’m a discretionary trader, and as every day is different in the market, my trading system needs to be adaptable to what the day brings. Nevertheless, each entry and exit is instinctual without procrastination or hesitation. That comes through a well-tested system over so many chart hours that the chart read and trade management is precise, mistake-free and systematic. When achieved, that, I’d say, is worth it and most certainly an edge.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.