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.

Develop your own trading style

There are so many styles of trading, so what makes sense is the direction we go.

However, we do spend an awful lot of time following what we happen to come across initially.

To a developing trader, I’d say try a wide field of methods to see what fits best.

But even a good find is constantly evolving.

In years gone by, day trading acquired a bad name. So much so that present traders, to make the distinction, refer to it as intraday trading.

Day or intraday trading has changed due to improvements in technology—and consequently tighter bid/ask prices—and greater liquidity.

More (if not the majority) proprietary firms are intraday trading today.

What I’ve liked recently is anything by Mike Bellafiore. Start with Chat With Traders episode 162, followed by One Good Trade (available on Audible) and The Playbook—an inside look at thinking like a professional trader.

As he is known, Bella teaches stock trading, but the material is excellent for whatever we have on our screens. For example, if you haven’t considered watching the order flow (also known as Depth of Market)—and the chances, like me, are no. Then Bella will make you reconsider.

The VWAP is an excellent tool for stocks and shares, commodities and (probably) indices. Not as valid for FOREX. Read The VWAP roadmap by Zach Hurwitz.

I trade gold (XAU/USD) intraday, which can provide a VWAP signal throughout the day (UTC+1) and recently the DAX (DE30) from early morning until early afternoon and watching again the US 500 (S&P) and US 2000 and US 30 from midafternoon (New York stock exchange open) onwards.

I watched bitcoin for a few weeks and decided to give it a miss—at least for now. A great introduction to bitcoin, and one that will change your mind if you have a negative bias, is the Digital Slowmad letter by Chris Lee.