In lesson 1 we established the fact that exit rules (not entry points) dictate the base winning percentage of the strategy. Knowing your natural trading style and its related base winning percentage allows you to choose a trading strategy that fits you best and gives you the best chance of having consistent profits from the market. This is a great initial start though base winning percentages merely achieve break-even results before commission costs. The only way to guarantee that the trading system will make money and compound gains over time is to have an additional statistical edge in your trading.
This additional statistical trading edge, or “edge,” does not have to be very large to be profitable. Those who experience large success in the markets understand their natural probability profile, only use strategies that keep them trading from strength, and develop other ways to improve their edge. This lesson will provide three universal ways traders improve their edge. As you get deeper into your curriculum, you’ll learn additional edge techniques associated with your natural trading style and corresponding trade strategies.
Below is a table showing just how small your edge needs to be to significantly increase your profits in the markets: