When it comes to day trading or swing trading a trading edge is simply a set of rules and conditions that have to be met for a trader to be convinced before making the decision to execute a trade.

An example of a trading edge can be thought as identifying when the market is trending, in which case you base your trades on the direction of the trend. For instance, if the market is on an uptrend it may be a better decision to execute buy trades because the trend is your friend. But sometimes you have to look out for situations were the uptrend is artificial due to a case of pumping and dumping.

Basic Preparation of a Trading Edge

To be a successful day trader preparation and discipline is a necessity that has to paid attention to all the time. Most importantly, you have to avoid the common mistake of making impulsive decisions that can ruin your trading edge.

The basic preparation of a trading edge involves being thorough with things like:

  • Entering Price – at what price are you going to enter the market.
  • Stop Loss Price – at what price are you going to exit the market if the trend moves against you.
  • Profit Taking Price – at what price are you going to close your profitable open position.

NOTE: You have to verify that the ratio of executing your trades is greater than 2.

Trading Edge - Execution ratio