I was working with an oil trader recently who commented on how the markets he trades have seen more and more players enter over recent years.
The markets are highly competitive now. Some of the more obvious advantages traders have had in the past have diminished. The market environment has changed. All of this has put a greater emphasis on the need for traders to seek an edge over other traders elsewhere.
Where can you get such edges?
Well, another trend I have noticed – perhaps in response to this – is the level of focus and attention traders are putting into their trading. More and more traders are looking for superiority in factors that lie outside of the market: edges that are psychological and physical in nature.
Once you have a trading strategy with some kind of competitive advantage (the only sort of ‘edge’ than many consider) then your trading performance and results are going to be down to the market conditions and how you trade those market conditions.
In other words, how you implement your strategies with your mind and your body.
This is where many traders have a lot of room for improvement. Here are three quick ways to make rapid strides forward – and perhaps come out ahead of all those other traders, no matter how numerous they become.
1. The Preparation Edge
Preparation enables you to best express your trading talents, knowledge and ability within the markets.
Ensuring that you have done your appropriate research, analysis and reading each day is one of the fundamental performance habits of high performance trading. It is best captured by the phrase ‘creating the conditions and opportunities for success’.
You can extend beyond the basics of preparation by starting to look at different scenarios that could occur during the trading day or period and considering some ‘if-then’ strategies.
If the data number comes out as expected then I will … ; if the number is lower than expected then I will … ; if the number is above expected then I will … etc.
2. The Energy Edge
Your levels of physical energy play an important part in your trading performance.
With high energy and good health:
- you will have greater concentration and focus (particularly towards the end of the trading day)
- you will be able to access high intensity positive emotions such as confidence, motivation and enthusiasm
- you will make less errors (fat fingers)
- you will also be less prone to the effects of fatigue on decision-making such as ‘cognitive ease’ when your brain takes simple steps to making decisions, and reduced risk perception which is a particular outcome of sleep deprivation.
To get an energy edge, focus on getting good quality and quantity of sleep, eating sensibly through the day and with a healthy breakfast to start the day. Exercise regularly and ensure that you get some recovery time to recharge. It really will affect your trading – sometimes very powerfully.
3. The Mental Edge
In the heat of the markets it is not just about having a solid trading strategy, it is also about being able to trade that strategy – about staying disciplined.
Being disciplined does not mean always rigidly sticking to your plan no matter what. That may not always be appropriate. There will be times when being able to make a judgement call in relation to a change in market events will be the most appropriate decision.
Good discipline in my mind is perhaps best thought of as being responsive to the market rather than reacting to your own inner experiences.
Sometimes traders react to the thoughts they are having or the emotions that they are feeling which may be more focused around their P&L rather than responding to the market and trading their strategy. Being able to work with your thoughts and emotions, to have an awareness of them, yet still take effective action for that situation is the key to being flexibly responsive and disciplined in the markets.
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If you can turn up to the markets each day with your strategy, good knowledge, well prepared, energised and mentally ready then you have already added some extra edge to your trading for that day, and put yourself ahead of those traders who may have the strategy but not the other factors that enable them to maximise the returns on it.
What will you do to maximise your trading edge?