Where does the trading advantage of the trader actually come from?

One thing we all as a leader face – is the instability and constant change of the market.

From new traders entering the profession to adept professionals, everyone has to face how to maintain an advantage and maintain their psychology from constant fluctuations.

Dr. Brett Steenbarger, a famous psychologist and leader, wrote about the relationship between trading advantage and trading psychology in an insightful article. Steenbarger emphasized that in order to achieve sustainable success, a treader needs not only a certain advantage, but must be able to adapt to different situations.

In particular, he argued that stable trading psychology was the result of a solid and diverse strategy, rather than simply being “strong” in spirit.

By exploring the three main types of trading advantages, he leads us through each method and explains how each type of advantage can help the trader maintain profitability and psychological stability.

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Recently, after a fairly long vacation, I returned to the world of online trading. It feels like stepping into a noisy room with countless voices jostling each other – such chaotic information and lots of noise can make anyone feel overwhelmed.

But at the same time, among those mixed sounds there are still bright gems – valuable shares, profound ideas, and especially independent studies that can help us understand. more about how the market operates.

One of the things that impressed me was Concretum Research’s research. This team not only shares new knowledge, but also evokes how we can capture and master the complex aspects of trading.

We not only need to know how to trade, but also have to gain a deeper understanding of the factors that help us gain market advantage.

In particular, there is an intimate relationship between advantage in trading and transactional psychology. When our trading advantage is clear and solid, we can make more confident decisions and minimize psychological pressure.

Let’s explore this deeper!

The advantage source in trading

Successful trading requires an advantage, also known as “edge”. These advantages are factors that allow us to have a higher chance of making a profit than risk.

I can divide the advantage in trading into three main categories: motion in the direction (directional movement), relative motion (relative movement), and absolute motion (absolute movement).

first. Motion in the direction (Directional Movement)

This is the kind of advantage based on predicting the direction of the market, or in other words, guessing whether asset prices will go up or down.

Many people enter the market based on motion in this direction because it is associated with major events or important news.

For example, when a policy announcement from the central bank, or an unexpected economic event occurs, the market will often react strongly, creating clear trends.

Like a breakthrough in sports, moving in the direction requires “catalysts” – which means that price stimulators move strongly in a certain direction.

Good people who capture this type of movement are often people who know how to find and understand the signs of preparation for major changes.

2. Relative motion (Relative Movement)

For relative motion, we not only look at an individual property but also consider the relationship between the properties.

This is a common method of trading property pairs or related markets.

For example, when interest rates rise, it can be predicted that the yield curve will change, thereby affecting the relative value of interest-related assets.

An easy-to-understand example is that if you expect inflation to rise, it can be predicted that the interest rate difference between assets will be affected accordingly.

Professional traders often take advantage of this type of advantage to develop strategies based on the relationship between assets, rather than relying entirely on the movement of a particular asset.

3. Absolute motion (Absolute Movement)

The ultimate advantage is absolute movement, that is, the advantage based on the volatility of the property, regardless of direction.

In this case, the treader usually doesn’t care much about whether the price will go up or down, but only cares if the volatility is within a certain range.

This is a common strategy in options trading, when traders predict that the market will be less volatile in the near future after a “wind wave” period.

Those who know how to grasp this type of advantage are often those who are able to measure risks and adjust strategies according to market volatility.

The similarity between trading and sports

When thinking about the sources of advantage in trading, we can relate to sports strategies.

Imagine a basketball team – to succeed, the team doesn’t just know how to score points in a single way. Depending on the opponent’s tactics, they can flexibly switch from defense to attack, from playing ball in the area near the basket to taking advantage of the long throws. The team cannot win just by being obstinate with a method.

Trading too!

There are times when the market rotates and we can harness the advantage of relative motion.

There are also times when the market follows the trend and that is when the advantage moves in the direction of its effect.

In addition, when the market becomes quiet, the trader can seek profits from low volatility.

Like a good sports team, a successful treader doesn’t rely solely on a strategy to win. They capture and understand the current market environment, then adjust the strategy to suit the situation. This adaptability helps them maintain an advantage even when the market changes.

Transaction psychology: Results or cause?

An important question in trading is whether trading psychology is the main cause of success or failure.

Many people think that if the mentality is strong, they will be easier to make a profit.

However, the reality is more complicated than that.

When we lack adaptability or do not have enough “tactical handbook” (playbook) – or methods to take advantage of different market conditions – we will easily fall into dynamic state.

This makes us only know how to use a few fixed strategies, and if the market changes, these strategies may no longer work.

As a result, we feel frustrated and stressed – from which trading psychology is affected.

That shows, the biggest problem is not our psychology, but our trading advantage and flexibility.

The affected psychology is only a consequence of a less flexible and vulnerable trading strategy to market volatility.

To overcome, we need to expand our “tactical notebook” and enhance our adaptability.

The more strategies and coping skills we have, the less we are affected by unexpected fluctuations and keep stability in trading psychology.

Conclusion: Flexible and ready to change

In trading, there is no fixed success formula.

In order to develop in a constantly volatile environment such as financial markets, we need to constantly seek and expand our trading advantage.

Do not rely solely on a single method, but be willing to learn and test different approaches.

Build a “tactical handbook” with many strategies to be ready to adapt to any situation in the market.

In short, just as legendary teams have many ways to win, excellent traders also need to have many “play paths” for different market conditions.

This flexibility not only improves profitability but also protects trading psychology from unnecessary pressures.

Turn learning and adaptation into a guide on your trading journey – that would be the “advantage” that really helps you conquer the market!