To make money trading , you need an edge . The edge has to be big and structural in nature so that you don't have to go hunting for edges daily or weekly or monthly.
Big and structural edges are inherent to nature of market behavior and have persisted for years.
Momentum is an example of structural edge in market. If you select stocks based on momentum either way ( with bullish or bearish momentum ) you can build edge by trading in direction of momentum or by trading a pullback in momentum stocks or by trading counter trend strategies on weak momentum stocks in hpe of turn in trend.
Momentum burst or impulse moves is another structural edge in market. When stock suddenly makes a move bigger than its recent days moves , there is a high probability it will move in direction of that momentum burst for 2 to 5 days. This structural edge has been in existence for hundreds of years.
Volatility contraction is big and structural edge. When a stock has low volatility period , that period resolves in a breakout. This allows us to scan for stocks with low volatility and enter in anticipation or enter on breakout out of such volatility contraction.
Mean Reversion is a big short and long term structural edge. Stocks that are up or down extreme amount on short term or long term timeframe revert and this is structural edge.
Earnings Surprise is a very big structural edge. Stocks with positive earnings surprise move in direction of positive or negative surprise.
This is not an exhaustive list , there are many more such structural edges in the market.
In order to make money in the market you need to take a big structural edge like this and marry it with execution edge to create your unique edge. This is where most traders have difficulties. And especially for new traders it can be very difficult to do that as they have low experience of doing trading .
If you want to make millions trading develop an edge. The earlier you can do that is your trading , quicker will be the rewards.
Big and structural edges are inherent to nature of market behavior and have persisted for years.
Momentum is an example of structural edge in market. If you select stocks based on momentum either way ( with bullish or bearish momentum ) you can build edge by trading in direction of momentum or by trading a pullback in momentum stocks or by trading counter trend strategies on weak momentum stocks in hpe of turn in trend.
Momentum burst or impulse moves is another structural edge in market. When stock suddenly makes a move bigger than its recent days moves , there is a high probability it will move in direction of that momentum burst for 2 to 5 days. This structural edge has been in existence for hundreds of years.
Volatility contraction is big and structural edge. When a stock has low volatility period , that period resolves in a breakout. This allows us to scan for stocks with low volatility and enter in anticipation or enter on breakout out of such volatility contraction.
Mean Reversion is a big short and long term structural edge. Stocks that are up or down extreme amount on short term or long term timeframe revert and this is structural edge.
Earnings Surprise is a very big structural edge. Stocks with positive earnings surprise move in direction of positive or negative surprise.
This is not an exhaustive list , there are many more such structural edges in the market.
In order to make money in the market you need to take a big structural edge like this and marry it with execution edge to create your unique edge. This is where most traders have difficulties. And especially for new traders it can be very difficult to do that as they have low experience of doing trading .
If you want to make millions trading develop an edge. The earlier you can do that is your trading , quicker will be the rewards.
3 comments:
Can you expand more on "execution edge"
There are many execution edges, Speed is a big execution edge. I have perfected my process to a level where I enter most of my breakout trades in first 165 minutes of market open. Now that execution edge can gave several fold returns compared to a person buying a breakout later in the day. Similarly in anticipation setups I developed an execution edge by buying them in last 2 minutes before close a day earlier instead of buying them next day morning using Buy Stop limit Orders.
There are several execution edges like these. As a result of that for a same trade I can end up making more money or improve win rate compared to those with no execution edge.
Thanks. That is a significant insight and edge.
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