Trading edge is an observational technique that permits traders to generate profits by taking an advantage over other market players. Among other trading techniques and strategies that exist, this one is arguably one of the most unpopular.
To take the discussion further, trading edge is inaccurate to translate as a single, unchanging strategy. Accordingly, analysts argue that it actually does not qualify for the category of one single strategy. It, perhaps, is a combination multiple strategies.
Among various methods about trading edge, there are arguably two which classify as the most widely known. They are Edgeless Strategies and Temporal Edges respectively.
Also Read: Monte Carlo Fallacy in Trading
Edgeless Strategies
To easily define the edgeless strategy, it is better to illustrate it with a simple case. Let’s situate a world where a random Forex trader is competing with others on the same market.
The trader has a mediocre knowledge regarding voguish Forex trading strategies. Additionally, the acquisition of the knowledge comes from consulting to books or websites about the topic in which the number of readers reaches more than ten thousands.
During transactions, he rarely makes profits. As he murmurs about the reason why he fail to generate profits, he realizes that he becomes lemmings by creating options and managing risk through the same strategies similar to the rest of market players.
Reflecting upon the case study, the mass use of the identical strategies eliminates the edge once possessed by them. Despite the exact accuracy of the condition is rather questionable, it is worth noting that the more something gets used more people, the more it loses its specialty and efficacy.
Temporal Edges
The shift change in market affects the utilization of the proper strategies at that very minute. The rapid change establishes and, at the same time, crushes the temporal edge.
The secret behind temporal edges is to massively use a particular strategy until a huge crowd does the same way and, subsequently, back off. Buy the dips is a good instance of the case.
As temporal edges are already quite cunning, the latest development of technology helps popularize it. For instance, High-Frequency Trading (HFT) gives ways to temporal trading.
Also Read: Risk of Ruin in Trading and Its Danger