Trading edge is the financial markets’ version of “competitive advantage.” It is the edge that each trader has over the market based on the trading strategy that he/she has developed.
There are several components to creating and maintaining a trading edge. First, the trader must identify if the strategy has an edge to begin with. Is the strategy based on proprietary information or analysis that he knows is nowhere else, or is it based on widely known market theories? If it’s the latter, then the strategy probably does not have a trading edge.
Next, traders must re-evaluate the strategy on a consistent basis to ensure that the trading edge is being maintained. From a review of internal financial performance data to reading industry publications to listening to financially focused TV, traders must continually ensure that their strategy is not in the process of being copied, or worse yet, already copied and utilized by others.
Finally, traders must be on the look-out for opportunities to develop a new edge. Whether that be a new company disrupting an old market sector or a new company entirely, traders must be ever watchful for opportunities to develop their next strategy.