Finding Your Trading Edge… And Using It!

Want one of the quickest and easiest ways to quantify your edge? Every time you place an initial stop, place an initial profit target symmetrically on the other side of the trade. So if you go long at 110 and your stop is at 105, place your profit target at 115. For traders who use r-multiples, this is placing an initial profit target at 1R. I do this visually on every single one of my trades now. It helps me stay focused on what my edge really is, a higher probability of one thing happening over another. Sometimes in the noise of our market analysis we forget exactly what we are using all of these graphs and indicators for. A trading edge, specifically, is a higher probability of hitting an initial profit target before hitting an initial stop.

Any analysis in the world is boiled down to that simple idea.

Below, I have a couple examples of my charts marked with the initial stop and initial profit target.

The green arrow is my entry. The dotted line is the initial stop. The ray is my initial profit target.

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ultrapro sp 500 etf sso chart trading edge_june 3

global brass and copper holdings chart analysis trading edge_june 3

As soon as I enter a trade, I will place alerts on either of these lines being hit and record the results. This is probably the easiest way to know if what I am doing actually has a trading edge. Without moving my stop or without moving my initial profit target, my initial target should be hit more than 50% of the time.

Of course, do not perform this practice naively. Do not assume an 80% edge over 20 trades is legitimate. Record your trade results and evaluate your edge over extremely large sample sizes.

Thanks for reading and good luck!

More from Anthony:  Trading Streaks: Seeing Through The Ups & Downs


Twitter:  @TraderTorchia

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.