What is a Trading "Edge?"

When I was a clerk on the floor of the CME in the mid-90's, soaking up everything I could about trading, I kept coming across the phrase, "You have to have an edge."  For some traders that simply meant standing near the pit broker and being on the right side of order flow because they provided liquidity, and this meant they could always buy on the bid and sell on the offer.  Easy, but not really trading I thought.
 
For others in booths outside the pit, or upstairs in an office, "edge" meant fast access to news and information and even faster order execution that allowed them to be in the price move first or even conduct arbitrage between markets.  Still others relied on their own wits to read a price chart and determine what the best entry points were in any given market, looking for those hard to find opportunities when the market was severely oversold to big support or overbought to significant resistance, and they simply had to grab the money.  And among all these types of traders, most probably gave the fundamentals a glance now and then as well.  Those who were pure fundamental traders were rare in the fast moving, highly-levered futures markets, but you could always tell who relied on hard research over wild price swings.  They stood back from the action and calmly strategized their next edge.
 
While I had special respect for the chartists and the fundamental guys and their brands of rugged individualism, I also greatly admired the options traders and their mining for edge.  These were the "quants" before anybody used the word and they brought their option sheets to the pit everyday with theoretical values that told them where they could essentially breakeven on a trade given a volatility estimate and the time to expiration.  If they could buy and sell around that theoretical value with a cushion, an "edge," then they might be able to capture a theoretical profit if they could get the hedge off in the futures pit.  There were a lot of "if's" for the option market makers that made me respect them as much as the chart guys relying solely on their intuitive navigation of support and resistance.
 
Speed, order flow, instant access, total information immersion, volatility arbitrage.  It seems "edge" means a lot of different things to a lot of different traders.  But you "have to have one" and so I went out of my way to learn the one edge that lies at the foundation of all the others.  To me, the foundational edge that guides most successful trading is a firm understanding and application of probability and risk dynamics.  When this knowledge is applied in a systematic way to a trading plan, short-term trading is allowed to become long-term, consistent success.  I teach this edge to new traders in a specialized 3 hour seminar I call the Masters of PROP Trader Training.  It's a trading simulation that forces participants to make decisions with limited information and potentially unlimited risk.  It can be as mind-blowing for the experienced trader who is struggling as it is eye-opening for the newbie who didn't really understand what short-term, leveraged trading was all about.
 
Masters of PROP (Probability, Risk, & Optimal Profit) is designed to teach traders the one edge that won't fail them.  I developed it in 2004 after ten years of study into what made super traders and what made trading disasters.  I was no math whiz in high school, much less college, and so I had to work hard to get to the core of trading success.  But, getting to the core is what I am all about, so it was just a matter of time with something I loved as much as markets.  Since I saw so many experienced traders blow up and not know why, and since we all know how many newcomers fail in the trading game within months, I saw that what most were missing was a solid education in probability and risk dynamics.
 
As humans, we traders like to think we are always rational and logical, but the truth is proven by both behavioral finance research and neuroscience that we act compulsively and irrational when it comes to decisions under risk and uncertainty.  Training our brains to think in terms of probability and risk metrics is the vaccine for (or the antidote to) our natural irrationality in the trading and investing spheres.  Besides that, even if your trading methods do have a built-in edge that puts probabilities in your favor and controls the risks well, there is no guarantee you will follow your rules, right?  Emotion is always going on, so it can either help you, or just get in the way.  It takes a certain degree of confidence to believe in and execute your rules consistently.
 
Which leads me to the next step in trader development: system development.  Once you understand the probability and risk dynamics of short-term trading, you are ready to build your own system.  And there is no better teacher for this than John Joseph of NextDSystems.  I may teach a foundational education in probability and risk, but Joseph is the true master.  A university math instructor for over five years, and nominated for a Distinguished Teaching Award at the University of Massachusetts, he too fell in love with markets, and then he left academia and became a very successful CTA.  He is one of the "totally automated" types because he knows he doesn't want his daily decisions and emotions involved in the trading process.  Through Next Dimension Creative Technologies (NextDSystems for short), he teaches traders how to quantify, build, and test their own structurally sound trading systems, whether they want to become totally automated or still keep a discretionary hand in the mix.
 
Why am I telling you all this?  Because on June 13th & 14th in Chicago, I am entering the dojo of this trading Sensei to learn how to quantify, build, and test my own structurally sound system!  This is something I have known how to do for years and have simply been too lazy or too afraid to try.  I needed help and now I am going to get it from the best teacher around.  I will be among 9 others who will get total access to the master as he walks us through the jungle of system development.  He will even give us one of his successful systems when we leave!  The workshop is called Building Trading Systems with Confidence.
 
To learn more about John Joseph and this fantastic opportunity, go to

http://www.MirusFutures.com/NextD.htm

Update: There are only 5 seats left.  If you join me on Saturday and Sunday June 13-14 in Chicago, the world capitol of trading and risk management, I have a special gift for you.  All those who register by June 8th and use my name will receive a free voucher for my Masters of PROP Trader Training.  I charge $500 for this seminar and that's already a decent discount.  It will cost much more this September.  You can use the voucher yourself, or give to a trader friend.  And my training can be delivered via webinar or phone.
 
See you tomorrow for my next topic in this 5-part series, "The System-Rules Spectrum."

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