To succeed as a Forex trader, one must definitely have an edge. Successful traders and many experts have been blabbering about this forex edge and that edge, but what is actually an edge?
To begin with, let us discuss the definition of a trading edge. An edge means a statistical advantage in which counts for the probability of winning over losing in certain present so long as consistency is present. Confused?
In the simplest form of language that even a simpleton can understand, an edge translates to having a way to win more money than you lose over a certain number of trade. It sounds simple, but the more you think about it, the more it gets confusing.
Many analysts and experts might mention many types of edge in Forex trading, but we will simply classify them into three categories. They are as follows.
Also Read: Defining Take Profit Order for Your Trading
Forex Trading System Edge
In short, the trading system edge here is equivalent to having a positive expectancy. It, however, is not the same as winning percentage.
In winning percentage, for example, you simply focus on the number of win rather than the amount of money you win. Imagine having five trades in which four of them you win a total of USD 800. However, one of them is a lose worth of USD 900. At the end of the day, you do not make profits.
In contrast, positive expectancy is focusing on the number of money you win. Considering the same instance, in four trades you lose USD 100 each. However, there is a single trade when you win USD 600. It, in conclusion, makes profits.
Emotional Management Edge
Again and again, many experts have warned you that emotional management is considerably essential in forex trading. Well actually, this arguably applies for all forms of trading.
Identical to any emotional management hacks, it always starts with not letting your emotions consume your rational thought to analyse and identify the situation. It, also, works by being consistent in applying a certain strategy you are familiar with rather than going from one strategy to another.
Risk Management Edge
Risk management edge belongs to the way to prevent you from losing. Of course, it is conducted by managing your risk.
There are a plenty of ways in executing risk management. Among many strategies, it is to calculate the amount of bet, the amount you need to make a break even, and the amount of money you lose. Also, it is important to note that risk management includes putting a stop loss at the right time and manner.
Also Read: Trading Edge, an Advantageous Technique in Forex Trading
