A competitive advantage is not a strategy but rather an ability to confidently overcome, adapt, and strategize. It is adaptive tenacity; a personal trait that can’t be bought.
I was recently reading a book called Currency Kings by Ben Robson. It details the stories of how (mostly well-known) traders like George Soros made billions trading currencies (using other people’s money…the returns weren’t that high, just the dollar volumes were).
The book starts out by talking about competitive advantage and finding your edge.
Most people think of a competitive advantage as a strategy. “If I learn this price pattern or indicator I will be rich.” That isn’t quite true.
Competitive Advantage in Trading is Not a Strategy
In trading, you need a competitive advantage. You are trading against others. Every time you buy someone is selling to you, thinking they are smarter, and vice versa. And most of the market is composed of people/companies (hedge funds, mutual funds, companies running algorithms, full-time traders, etc) who trade for a living and who are very good. They have a competitive advantage over you for the first years of your trading journey; this is why most traders lose early on.
Strategies change, or become better or tougher to trade in some environments. So a strategy isn’t a competitive advantage in and of itself.
When I started out day trading stocks I pulled several hundred thousand out of the markets using a particular strategy. It worked for a few years, and then it totally died. The profit potential was gone. I had to come up with something else. It was a hiccup, but not the end of the road. I just altered my method to suit the new conditions.
Therefore, a competitive advantage isn’t the strategy, because a very profitable method can disappear. And it may not be the market that changes, it could be regulations or market access. Leverage gets cut all the time in various countries, eliminating a way of trading that used to be viable (recent occurrences in forex).
Restrictions are placed on certain types of trading, or new taxes are introduced that eliminate the edge of a strategy. Or a company goes out of business and you no longer have access to data that your strategy was reliant on.
Maybe how data is disseminated changes. Or accounting guidelines change making it harder for fundamental traders to analyze stocks. These things all happen. I have traded through many such changes since 2005, and expect a lot more in the future—events or changes that alter how I trade.
Or the change may be life: you have a baby and can’t trade at the same time, you get a different job that changes your schedule, your ou move cities or countries which changes the time or market you trade. The list goes on. THINGS CHANGE!
It is the trader’s ability to adapt to changing market conditions, and to alter their strategies (or know when not to trade) to those conditions, that gives them a competitive advantage. Competitive advantage is a personal trait…learned and forged within. Despite what the marketers would have you believe, competitive advantage can’t be bought.
That is why some traders may thrive for a year or two, but then blow up. They fail to adapt. Some programs or strategies you buy will work amazingly well, but usually, it is created by someone who hasn’t traded very long (less than five years) and so they have no idea how to adapt the strategy/program when conditions change. They have no idea how things could change. It quickly goes from working great to losing all your money.
A Competitive Advantage in Trading is the Ability to Confidently Adapt
Having traded as my main income since 2005, I still know there are tough market conditions I have not lived through. Yet, I am always thinking about ways to trade in these tougher environments in case they arrive, and attempt to build those ideas into my strategies/risk management. That’s my competitive advantage…knowing that what works today may not work a month from now, and planning for that.
Building and improving discipline is another competitive advantage. It doesn’t matter how well we trade if we can’t control ourselves and end up losing it all in a fit of rage. Discipline is a competitive advantage forged within; no one else can do it for us.
I also try to create strategies that work well in different market conditions. For example, double consolidations occur after a pullback and marks a potential turning point, a cup and handle occurs later, contraction patterns occur after that, and when the ascent is less vertical we tend to get trend channels.
Different strategies for different conditions, but all share similar characteristics, like only trading strong stocks, and only swing trading stocks when conditions are favorable for doing so.
In itself, strategy is a good thing, and along with discipline, it forms a solid foundation for trading. …the system may work, although it would be difficult to predict for how long and to what scale. To win big, there needs to be more: a certainty that allows a trader to trade with a winning confidence. That certainty is a competitive advantage. — Currency Kings
Confidence comes from overcoming things that are tough, and putting in the work to know that what we are doing works. I try to help my students with this, by getting them comfortable with their strategies (whether based on my strategies or their own), and executing those strategies well.
This speeds up the process, even though it still takes time. Yet, ultimately, if they never trust a method, they won’t trade it well. Maybe they need to vary it slightly so it suits their beliefs of what a great strategy is.
The nice thing is that confidence doesn’t have to be there initially. And it probably shouldn’t be when starting out. Misplaced confidence can be a very dangerous thing in the markets! By taking proper steps and seeing ourselves do something well, confidence will come.
Think about an area of your life you are confident in, because you have worked at it diligently. You don’t question yourself much in that area of your life, you just know you can handle what comes. Maybe you’re really good at your job. Things change every day, and there are always different situations to handle, and yet you do it. You adapt and use your strengths and confidence to get it done. That’s a competitive advantage, and that is where we want to get to with our trading. Our strategies and our psychology align so that we feel prepared for anything.
As the marketing for “easy money” becomes more pervasive, I must state that buying a strategy isn’t going to do you much good for long. It needs to be accompanied by information on adapting…when is the strategy used? When isn’t it used? How do we know the difference? How should we adapt when things get volatile or quiet? And even if these questions are answered, and the strategy is awesome, each person needs to agree with themselves that they will do the work to become confident (and stay confident) in that method and that they will build the discipline to execute it well, always.
Most people never make this agreement. They just hop from system to system, never becoming confident or good at trading them. They are constantly questioning themselves, instead of looking to the charts for answers and data that will help them build the confidence they need and alter the strategy to something to works for them.
At some point, you have to say to yourself “I have put in the work. I GOT THIS!” and trust yourself to execute…on your own. If you need other people’s assurance for a trade, you aren’t trading confidently, so you probably won’t trade well. If you don’t know when a strategy should or shouldn’t be used, or how it adapts…find out, ask questions, look through charts to find out.
Asking someone definitely speeds up on the process…but confidence won’t come till you start doing your own verification and homework. Studying charts and writing down what you find WILL build confidence because you see with your own eyes how things work.
Building and Keeping a Competitive Advantage
A few of my favorite books on building and keeping a competitive advantage are:
- Trading in the Zone by Mark Douglas
- Think and Trade Like a Champion by Mark Minervini
- The Art of Thinking Clearly by Rolf Dobelli
- Van Tharp has many great courses and books on working on the internal aspect of trading, which will help with building and keeping a competitive advantage.
After trading for some time, many people notice that when everything else in life is going well, so is trading. Trading results often reflect what is happening inside of us.
Hit the gym, eat well, meditate, get some coaching, or attend positive/helpful workshops, sit and just think, take breaks from social media and technology, and/or spend time outside.
All of these things help us feel better. They make us more mentally nimble and responsive to act on our knowledge which we should be expanding to learn about how conditions may change (researching history is a good start) and how we can adapt to changing conditions. This is a constant task, and successful traders adapt well because they expect and plan for change.
Interested in learning how to crush the EURUSD in two or less a day (can also trade longer)? The EURUSD Day Trading Course has strategies, tactics, exercises, and mental work to get you trading in top form...but as discussed in the article, you need to put in the work to get confident in the methods and your own ability to trade.
By Cory Mitchell, CMT.
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.