Know Thy Edge
Am I harping on the word "edge"? Sure, why not? It's a functional, concise, and connotative term that distills just what this business of trading is all about. But as I mentioned before, it's a word that's been robbed of substance and swept under the rug, having been gently prodded into prosaic jargon -- an irony which I'd say is at the root of most aspiring traders' struggles. So I think it pays to take a moment and flesh out this ghost of a term, and return its original implications to the fore of our efforts.
Edge. From what lexical angle does the word enter the vocabulary of speculation? What does it imply? Cutting edge. Leading edge. By definition, having an edge means having the capability to be consistently ahead, in perception and in action. Ahead of what? Ahead of whom? Well ideally, everyone else -- i.e., the crowd. For who is the crowd but simply all who perceive and need to act after you: buy after you've already bought, sell after you've already sold. In other words, the very source of all your profits. From this implication, the primary objective of every trader in terms of edge is to seek one that maximizes the crowd behind him.
If that definition of edge comes across as somewhat obscure, perhaps we can be more specific about things which probably don't qualify as an edge in themselves. Take the myriad of assorted technical "indicators" and scanners that come pre-packaged with any data subscription, and which promise the power to quickly ferret out opportunities across thousands of securities -- will they alone suffice in achieving consistent gains? If one acknowledges that the vast majority of these indicators are only second-hand derivations on price, volume, and time, would it make sense to think they can somehow get you ahead of the crowd? Is there such a thing in this business as a "leading" indicator, beyond what's shown on the tape? Could it be that these bells and whistles give at best an illustrated "Reader's Digest" of a given market, and this poses as an edge simply because the trader does not have the time nor propensity to read each and every word of that security's proverbial history? Better than nothing perhaps, but not much more.
Understanding one's edge cannot be underestimated; a trader must know exactly what it is that supposedly puts him ahead of the field. Don't settle for simplistic regurgitations, nor shy away from complexity if that's what's required. For to find a true edge is nothing less than comprehension of the impetus behind the movement of markets.
posted by illiquid at 12:20 AM
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